737/CBDT. - Income Tax - 737/CBDT

INSTRUCTION NO. 737/CBDT Dated : August 14, 1974 Section(s) Referred: 2(22)(e) Statute: Income - Tax Act, 1961 Under Section 2(22)(e) of the IT Act, 1961, any loan or advance made by a closely held company to a shareholder who has a substantial interest in the company is taxable to the extent to which the company possesses accumulated profits, as deemed dividends in the hands of the shareholder. 2. I am directed to state that the Revenue Audit have pointed out an instance where large sums taken as a loan from a closely held company by a shareholder who had a substantial interest in it were not brought to tax. In this case the mistake arose because of the failure of the ITO assessing the company to intimate to the ITOs assessing the shareholders the details of such loans. It is the duty of the ITOs assessing companies to scrutinize whether loans have been advanced by closely held companies to their shareholders and if so the amount of such loans along with the details of accumulated profit should invariably be intimated to the ITOs assessing the shareholders. These instructions may please be brought to the notice of all officers working in your charge.