IT Appeal No. 82 (Agra) of 2012

[Decided on : 23/10/2012]

Income Tax Act, 1961 – Section 2(22)(e) – deemed dividend – loans to director who was holding 10% of the share capital of the lending company – Assessing Officer(AO) assessed the loan as dividend – whether correct – Held, Yes.

Brief facts :

During the assessment proceedings, the AO noticed that the assessee had taken unsecured loan from M/s. Krishna Beads Industries Private Limited (Company) of Rs. 37,28,059/-. The assessee was a director, having substantial interest in the Company and was holding not less than 10% of the voting power in said Company. Even the object clause of the Company did not state that the main business of the Company was of money lending. The AO examined the the Balance Sheet of the company and noticed that total loans and advances were only Rs. 47,90,339/-, out of which loans to the extent of Rs. 37,28,059/- was given to the assessee. The AO has also examined the profit & Loss Statement of the company and noticed that interest received from the assessee of Rs. 62,280/- was shown as indirect income.Hence, the AO considered the amount of Rs. 37,28,059/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 and the Order of the AO was confirmed by the Commissioner of Income Tax (Appeals).

Decision : Appeal dismissed.

Reason :

  • As per Section 2(22)(e) if the Income Tax, 1961, any payment by a Company, not being a Company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than the 10% of the voting power shall be treated as deemed dividend. and taxable in the hands of the assesse.

  • The section will not include any advance or loan made to shareholder by a company in the ordinary course of it business, where the lending money is substantial part of business of the company.

  • Here in the present case, it was noticed that the assessee has failed to establish that the substantial part of business of the Company is money lending and the loans and advances received by the assessee is in the ordinary course of money lending business.


On the basis of above discussions, the unsecured loan of Rs. 37,28,059/- advanced to the assessee is treated as deemed dividend and taxable under the hands of assessee.

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