PRADIP KUMAR MALHOTRA Vs. COMMISSIONER OF INCOME-TAX WEST BENGAL-V, ITA NO. 219 OF 2003, JUDGMENT ON: 02.08.2011, HIGH COURT AT CALCUTTA
The phrase “by way of advance or loan” s. 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares.If such loan or advance is given to such share holder as a consequence of any further consideration received from the shareholder, then such advance or loan cannot be said to be “deemed dividend” u/s 2(22)(e). Thus, while gratuitous loan or advance given by a company to a substantial shareholder comes within the purview of s. 2(22)(e), a case where the loan or advance is given in return to an advantage conferred upon the company by the share holder does not. On facts, as the advance was in lieu of the company being permitted to mortgage the assessee’s falt, it was not “gratuitous” and so not assessable as “deemed dividend”.