If a loan or advance is given to a shareholder for the benefit of the company, it doesn’t qualify as a deemed dividend under section 2(22) of the Income Tax Act.
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) clarifies the treatment of loans or advances to shareholders. It has held that if a loan or advance is given to a shareholder for the benefit of the company, it doesn’t qualify as a deemed dividend under section 2(22) of the Income Tax Act.
The case is with regard to an individual who purchased property for a company’s expansion. Tax authorities initially treated this as a deemed dividend, causing scrutiny. However, the ITAT found in favor of the appellant, who argued the property was for the company’s use.
This ruling sets an important precedent, emphasizing that transactions beneficial to the company don’t fall under Section 2(22)(e) of the Income Tax Act, which deems certain payments to shareholders as dividends.
The case is a remarkable win for shareholders and businesses! Stay informed about tax rulings for sound financial strategies.
The copy of the order is as under:
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