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2006 (4) TMI 190 - AT - Income TaxInterpretation Of Statute - Deemed dividend u/s 2(22)(e) - advanced money from sister-concern - HELD THAT:- Sub-cl. (e) of s. 2(22) shows that for the purpose of the Act any payment made by a company of any sum of money by way of advance or loan to its shareholder is deemed to be a dividend since the Act has not provided for any other definition of the word "dividend" except the words enumerated in s. 2(22), it should be construed that this definition would be applicable to all provisions which contains the term dividend in the Act. Distribution can be physical or constructive. The expression accumulated profits occurring in sub-cl. (e) of s. 2(6A) of 1922 Act [corresponding to s. 2(22)(e) of 1961 Act] was or for the manner in any other clause means profit in the commercial sense and not assessable or taxable profits liable to tax as income under the Act. Sec. 2(22)(e) creates a fiction bringing in amounts paid otherwise than as dividend into the net of dividend. Sec. 2(22)(e) must, therefore, be given a strict interpretation. The learned CIT(A) concluded that the AO stretched the definition of s. 2(22)(e) to include even legitimate transactions carried out in the ordinary course of business where the intention is neither to give a loan or advance or to confer some individual benefit on the shareholders. The important words in the section are loan or advance and for the individual benefit of such shareholders. The loan is something different from debt. For a loan there must be a lender, borrower as well as a contract/agreement between the parties for the return of the loan amount. Every sale of goods on credit does not amount to a transaction of loan. One important point pertinent to mention here is that the learned AO has never doubted the sequence of market service, exhibition at Taj Palace and execution of orders in pursuance of the advance. We agree with the conclusion of the learned CIT(A) that it would have been a different story if M/s Ariel Exports (P) Ltd. would have made the payment by way of loan or advance to the partners of the assessee not for the purpose of business, but for their individual benefit. No specific defect has been pointed out in the conclusion of the learned CIT(A). The same is upheld. In the result, the appeal of the Revenue is dismissed.
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