Deposit to director
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 June 2014
OUR IS PVT LTD COMPANY. THE COMPANY IS USING PREMISES IN THE NAME OF DIRECTOR AS ADMIN OFFICE. THE COMPANY PAYS RENT PER MONTH TO DIRECTOR. NOW THE DIRECTOR WANTS DEPOSIT FOR THIS PREMISES. THE DIRECTOR IS HAVING SUBSTANTIAL INTEREST IN THE COMPANY.
I WOULD LIKE TO KNOW WHETHER THESE PAYMENTS WOULD AMOUNT TO DEEMED DIVIDEND ?
ALSO WHETHER COMPANIES ACT WILL ALLOW THIS ?
I WOULD LIKE TO KNOW WHETHER THESE PAYMENTS WOULD AMOUNT TO DEEMED DIVIDEND ?
ALSO WHETHER COMPANIES ACT WILL ALLOW THIS ?
CA. Nage Gowda
(Expert)
19 June 2014
You may possibly refer the following cases:
The Hon'ble ITAT, Chandigarh Bench in the case of DCIT Vs. M/s. Lakra Bros. (2007) 106 ITJ 250 (Chd) has held that the definition of the "deemed dividend" as enshrined in Section 2(22)(e) cannot be stretched to include in its ambit the legitimate transactions carried out in the ordinary course of business, where the intention is neither to give a loan or advance nor to confer individual benefit on shareholders.
The Hon'ble Bombay High Court in the case of CIT vs Nagindas M. Kapadia (1989) 177 ITR 393 (Bom.) has held that advances made against purchases do not attract the provisions of Section 2(22)(e) which, in turn, implies that regular business transactions cannot be construed as loans and advances within the meaning of Section 2(22)(e).
The Hon'ble Mumbai ITAT in the case of M/s. N.H. Securities Ltd. Vs.DCIT (2007) 11 SOT 302 (Mum.) has held as under: "wherever payments made by a limited company to its shareholders are proved by its characteristics as other than loans and advances, the question of invoking the provisions of Section 2(22)(e) does not arise. The nature and the character of the payments made by the company is very important in examining whether a particular payment made by it falls under the mischief of Section 2(22)(e) or not. It is to be seen whether the payments are made by the company through a running account in discharge of its existing debts or against purchases or for availing services. Such payments being made in the ordinary course of business carried on by both the parties cannot be treated as deemed dividend for the purpose of Section 2(22)(e)".
The Hon'ble ITAT, Chandigarh Bench in the case of DCIT Vs. M/s. Lakra Bros. (2007) 106 ITJ 250 (Chd) has held that the definition of the "deemed dividend" as enshrined in Section 2(22)(e) cannot be stretched to include in its ambit the legitimate transactions carried out in the ordinary course of business, where the intention is neither to give a loan or advance nor to confer individual benefit on shareholders.
The Hon'ble Bombay High Court in the case of CIT vs Nagindas M. Kapadia (1989) 177 ITR 393 (Bom.) has held that advances made against purchases do not attract the provisions of Section 2(22)(e) which, in turn, implies that regular business transactions cannot be construed as loans and advances within the meaning of Section 2(22)(e).
The Hon'ble Mumbai ITAT in the case of M/s. N.H. Securities Ltd. Vs.DCIT (2007) 11 SOT 302 (Mum.) has held as under: "wherever payments made by a limited company to its shareholders are proved by its characteristics as other than loans and advances, the question of invoking the provisions of Section 2(22)(e) does not arise. The nature and the character of the payments made by the company is very important in examining whether a particular payment made by it falls under the mischief of Section 2(22)(e) or not. It is to be seen whether the payments are made by the company through a running account in discharge of its existing debts or against purchases or for availing services. Such payments being made in the ordinary course of business carried on by both the parties cannot be treated as deemed dividend for the purpose of Section 2(22)(e)".
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