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2016 (12) TMI 1297 - HC - Income TaxDeemed dividend addition u/s 2(22)(e) - Held that:- In the instant case, the loan advanced is found to be gratuitous inasmuch as, the loan advanced was not in return to an advantage conferred upon the closely held company by the assessee company and thus, none of the decisions cited by the learned counsel referred to hereinabove help the appellant in any manner. In view of the conclusion arrived at by us after due consideration of the facts situation emerging in the present case that money lending cannot be treated to be substantial part of the business of the closely held company, the decision of the Bombay High Court in Parle Plastic Ltd.’s case (2010 (9) TMI 726 - BOMBAY HIGH COURT), also does not help the appellant. Accordingly, the question no.1 framed is answered in terms that the ITAT has committed no error in construing the provision of Section 2 (22)(e) of the Act of 1961 while arriving at the conclusion that the loan advanced by M/s Sun Polytex Pvt. Ltd. shall be treated to be ‘deemed dividend’ liable to be taxed in the hands of the assessee. Income by way of dividends being exempt in the hands of shareholder in view of the provisions of Section 10(34) read with Section 115-O - Held that:- A bare perusal of Section 10(34) read with Section 115-O makes it abundantly clear that by virtue of said provisions, only the amount declared, distributed or paid by the domestic company by way of dividends whether out of current or accumulated profits made chargeable to additional income tax in the hands of the company, stands excluded from the computation of the income of any person and not the ‘deemed dividend’ in terms of provisiosn of Section 2 (22)(e) of the Act of 1961. Thus, the loan or advance by closely held company to the shareholder, which is treated to be ‘deemed dividend’ by virtue of provisions of Section 2 (22)(e) of the Act of 1961, continues to remain liable to be taxed in the hands of the recipient.
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