section 2(22)(e) dealing with the payments or distributions by the company to its shareholders deemed to divided to the extent of accumulated profits of the company.
Whereas it can be applied to ‘Loans’ or ‘Advances’ but not to the transactions amount to Loan and Advances carried out in course of business as such. In the course of carrying on business transaction between a company and a stockholder, the company may be required to give advance in mutual interest. There is no legal bar in having such transaction.
What is to be ascertained is what is the purpose of such advance. If the amount is given as advance simplicitor or as such per se without any further obligation behind receiving such advances, may be treated is ‘deemed dividend’, but if it is otherwise, the amount given cannot be branded as ‘advances’ . Within the meaning of deemed dividend under section 2(22)(e).
The athe decision of HIGH COURT OF DELHI, In The case of: CIT v. Creative Dyeing & Printing Pvt. Ltd., Appeal No.: ITA No. 250/2009, Decided on: September 22, 2009 is corroborating the above.
Just as per clause (ii) of section 2(22)(e), dividend is not to include advance or loan made by a company in the ordinary course of business where the lending of money is a substantial part of the business of the company advance in the ordinary course of carrying on business cannot be considered as dividend within the meaning of section 2(22)(e).
By granting advance if the business purpose of the company is served and which is not the sum, which it otherwise would have distributed as dividend, cannot be brought within the deeming provision of treating such ‘Advance’ as deemed dividend ”
