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TMI Blog2018 (4) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... ords “loans or advances” can be applied to loans or advances simplicitor and not to those transactions carried out in the course of business. In the course of business between the company and a shareholder, the company may be required to give advance in mutual interest. There is no legal bar in having such transaction. By granting advance, if the business purpose of the company is served and which is not the sum, which it otherwise would have distributed as dividend, cannot be brought within the deeming provision of treating such advance as deemed dividend. Thus such advances cannot be a subject matter of section 2(22)(e) - Decided in favour of assessee - ITA No. 3562/DEL/2017 - - - Dated:- 9-3-2018 - SHRI B.P. JAIN, ACCOUNTANT MEMBER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the facts of the case. On perusal of the record and arguments of the parties, I am of the view in the present case that M/s. Saamag Exim Pvt. Ltd. is engaged in the business of acting as commission agent for sale and purchase of ships. The assessee is a director in M/s. Saamag Exim Pvt. Ltd. The assessee is actively involved in the negotiations for the sale and purchase of ships with the interested parties. In the course of such negotiations the assessee requires funds to block the deal or where advances had to be paid to intermediary brokers. 6. For such purposes M/s. Saamag Exim Pvt. Ltd. had provided that advance would be provided to the directors to the extent of ₹ 15 lacs p.a. 7. Section 2(22)(e) of the Act, for the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then Finance Minister would show that the purpose of the insertion of sub-clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. 8. Therefore, if the said background is kept in mind, it is clear that sub-clause (e) of Section 2(22) of the Act, which is in parimateria with sub-clause (e) of section 2(6A) of the 1922 Act plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall within the definition of deemed dividend under section 2(22)(e). 10. In the case of CIT vs Ambassador Travels Pvt. Ltd. [2009] 318 ITR 376 (Delhi), the Hon ble High Court gave a finding that the provisions of section 2(22)(e) of the Act can be applied to simplicitor loans and advances and not to those transactions carried out in the course of business. 11. The Hon'ble Delhi High Court held as under: The Tribunal was of the view that there is nothing on record to show that the amounts that considered by the Assessing Officer were in any manner adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt I CIT vs Raj Kumar, 317 ITR 462 (Del.) held that a trade advance which is in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of the provisions of Section 2(22)(e) of the Act. 15. The Bombay High Court in CIT vs Nagin Das M. Kapadia, 177 ITR 393 (Bom.); 42 Taxman 128, held that business transactions are outside the purview of Section 2(22)(e) of the Act. In Kapadia s case, the company in which Kapadia was having substantial interest had paid various amounts to Kapadia. The Tribunal had found that Kapadia had business transactions with the company and on verification of the accounts, the Tribunal deleted the amounts which were relating to the business transactions. This finding w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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