TMI Blog2004 (10) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that the assessee is maintaining imprest account with one of the directors Shri Satish Behal, who is also being assessed to tax. From the imprest account, the AO further noticed that there has hardly been any utilisation of the funds kept with the said director during the year under consideration which were lying idle (details given in the order of the AO). The AO further noticed that this director Shri Satish Behal has also advanced interest-free loans to the assessee-company, as detailed in the order of the AO. Thereafter, the AO looked into the consolidated account of the assessee-company incorporating both the imprest account and the director's account, as detailed in the order of the AO, and from the same, the AO noticed that advancing of sums to the director under imprest account without their utilisation did not have any business expediency and as such the same was clearly in the nature of the short-term interest-free loan to the director Shri Satish Behal. The AO was of the opinion that the amount so advanced clearly falls within the ambit of dividend under s. 2(22)(e) of the Act. The AO issued a detailed notice to the assessee-company inquiring about the nature of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of s. 2(22)(e) of the IT Act, 1961, were not applicable to the facts of the case. The addition made by the AO, therefore, deserves to be deleted. Accordingly, I direct the AO to delete this addition." 5. Before us, learned Departmental Representative for the Revenue, besides placing strong reliance on the reasoning given in the order of the AO, submitted that we have to carefully examine the facts of the instant case of the assessee to see whether the amount given to the director is an amount towards the imprest account in real sense or in fact it was an amount advanced to the director as a short-term loan and for that purpose one has to go behind the transaction and know the real motive of the transaction because from the order of the AO, it is evident that from 5th June, 1997 to 3rd Feb., 1998, there were huge deposits in the imprest account but the assessee has not been able to answer as to why there was no withdrawal indicating the utilisation of those funds during the year and so, according to the learned Departmental Representative for the Revenue, the AO in the well-reasoned and well discussed order, has rightly come to the conclusion that the assessee has advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Lordships of apex Court while observing that: "The statutory fiction created by s. 2(6A)(e) of the Indian IT Act, 1922, would come into operation at the time of the payment of advance or loan to a shareholder by a company in which the public are not substantially interested and tax is attracted to the loan or advance to the extent to which the company possesses accumulated profits the moment of the loan or advance is received. Even if the loan or advance ceases to be outstanding at the end of the previous year in which the loan or advance was taken, it can still be deemed to be 'dividend' if the conditions of s. 2(6A)(e) are satisfied. Except for the specific provision in s. 12(1B) for the asst. yr. 1955-56, the legislature has deliberately not made the subsistence of the loan or advance or its remaining outstanding on the last date of the previous year relevant to the assessment year a prerequisite for raising the statutory fiction." Held "Accordingly, that, the assessee was taxable on the sum of Rs. 2,72,708 received by him as loan or advance during the calendar year 1956 relevant to the asst. yr. 1957-58 from a private company of which he was a shareholder, even thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material if the cash is kept in the company's chest or with the director, so, the amount kept in the imprest account of the director cannot be treated as short-term loan or advance because it is not disputed by the Department that the entire amount was utilised in the next year, is not clear from paper book p. 14. The utilisation of this amount has been shown in the balance sheet to indicate that this amount was utilised by the director from the imprest account. Further, learned Authorised Representative for the assessee referring to paper book p. 13, submitted that the minimum amount of Rs. 1 lakh was reflected in the imprest account of the assessee being utilised in the previous year and the AO has not treated the same as dividend, so in the year under consideration, the AO was not justified in treating the amount in the imprest account of the director as dividend. 7. In the alternative, learned Authorised Representative for the assessee referring to the concluding para of the impugned order of the AO submitted that the addition, if any, was required to be made in the hands of Shri Satish Behal, director, and not in the hands of the assessee-company. In support of his contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case law relied upon by both the parties. 9. In order to resolve the issue whether the interest-free loan has been advanced by the assessee to its directors/shareholder Shri Satish Behal, falls under s. 2(22)(e) of the Act, we are required to decide the following points: First, whether s. 2(22)(e) applies to the case of the assessee-company; Second, if the assessee to the first point is positive, then in whose hands the addition of the impugned amount is to be made. Now we shall take up the first point. Both the parties before us have not disputed that at the relevant time, the payment made by the assessee-company was a company in which public is not substantially interested. The amount in question has been given to the director Shri Satish Behal who is a shareholder and who has a substantial interest in the company. This amount has been given by the assessee to the extent to which the company possessed accumulated profits. Now the only condition required to be fulfilled under s. 2(22)(e) of the IT Act is that the impugned amount given by the assessee-company to its director/shareholder Shri Satish Behal was a loan or advance by the company. In the instant case, according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Authorised Representative for the assessee does not apply to the facts of the instant case of the assessee because the Tribunal in this case has simply defined the loans and advances which could be considered deemed dividend for the purpose of s. 2(22)(e) of the Act and then in the facts of that case, the Tribunal concluded whether it was a loan or advance. 11. Whereas, in the instant case of the assessee, in the present facts and circumstances, we are not to be simply carried away by the nature of the transaction of the imprest account created with the director by the assessee but in order to see the real motive behind the creation of this imprest account, we have to see the real nature and purpose of this account and thereafter conclude whether the assessee has given short-term loan to its director/shareholder because the other conditions of s. 2(22)(e) for treating the same as deemed dividend have not been disputed by the assessee before us. 12. We may further mention that after examining the facts and circumstances of the case of the assessee in detail, as discussed hereinabove, we carne to the conclusion that the creation of imprest account with the director/shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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