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2016 (8) TMI 651 - AT - Income TaxDeemed dividend u/s.2(22)(e) - assessee was having major shareholding - nature of loan received from the company - inter-se transactions between the companies - Held that:- In this case the facts reveal beyond doubt that the transactions in question were out of business requirements between the said three companies which were having running accounts with each other. The assessee has not received any direct or indirect individual benefit out of these transactions. The Hon’ble Supreme Court in the case of “S.A.Builders Vs. CIT” [2006 (12) TMI 82 - SUPREME COURT ] held that it is not necessary that loan amount should be exclusively used in the business of the assessee. However, requirement is that it should be used for the purpose of business expediency. Though, the above observations have been made by the Hon’ble Supreme Court in the context of Section 37 of the Act, yet, the proposition as to when the amount was advanced or paid in the case was out of any commercial expediency or in the course of business and were not gratuitous payments for the benefit of the shareholders, then, applying the same analogy, such payments made through inter-corporate transactions between the parties cannot be treated deemed dividend at the hands of the assessee-shareholder. The coordinate Visakhapatnam Bench in the case of “M. Amareswara Rao Vs. DCIT” [2016 (2) TMI 379 - ITAT VISAKHAPATNAM ] has observed that a careful study of the provisions of Section 2(22)(e) make it clear that the Legislature wanted to bring to tax the amount paid by closely held companies to their principle shareholders to avoid dividend distribution tax and that the provisions of section 2(22)(e) of the Act must be made applicable, wherein the dividend is paid in the guise of loan or advance to avoid tax. But to apply the provisions of Section 2(22)(e) of the Act, an honest attempt is to be made to understand, whether the impugned amount is a loan or advance within the meaning of said section. Thus payments made through inter-se transactions between the companies cannot be termed as any gratuitous payment to the assessee shareholder and, thus, the provisions of Section 2(22)(e) are not applicable in this case. - Decided in favour of assessee
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