In the case study given below is the deemed dividend payable

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 February 2014 I cite below a Judgement:

“Payment by a company to a firm in which shareholder is a partner for repayment of advances in regular course of business repaid the amount it had taken can’t be deemed dividend under section 2(22)( e) [ Mukandray.K.Shah v/s CIT (2005) 197 CTR (Cal) 563: (2005)277 ITR 128(Cal)]”.

I fill up my "case data" in the judgement cited above and request the EXPERTS to put it to the test whether it qualifies for "Deemed Dividend":

“Payment by a company (XYZ Pvt.Ltd.) to a firm (ABC- A Partnership Firm) in which shareholder (Mr.S) is a partner, for repayment of advances (Rs. Rs.75,15,227.00) in regular course of business (In this case the said business was being carried out by ABC and slowly the same business was shifted to XYZ,resulting in to less turn over to ABC and more turnover to XYZ. This situation prompted the Bank to disburse the full Top Up loan to XYZ which had more turn over. And so XYZ took it and advanced Rs. 75,15,227.00 to ABC for repayments of the loan which it had taken in “regular course of business”) repaid the amount it had taken can’t be deemed dividend under section 2(22)( e) [ Mukandray.K.Shah v/s CIT (2005) 197 CTR (Cal) 563: (2005)277 ITR 128(Cal)]”.
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The History is as follows:
a) ABC(Partnership) & abc(Partnership) were doing business of Supply & Erection since 1998.
b) They had obtained ODAP facility from bank for doing business.
c) Slowly as the business grew in 2008 they formed XYZ Pvt.Ltd. and ABC wrote to its clients that now on wards work may be offered to XYZ Pvt.Ltd..
d) A fresh VAT registration for XYZ was obtained and submitted to clients.
e) Meanwhile "abc" stopped doing business and filing NIL return since then.
f) The bank loans were on the name of ABC.
g)A non banking finance company was approached for TOP UP loan. They advanced the loan to XYZ Pvt.Ltd. as its turnover had increased whereas that of ABC had decreased and so ABC was not fitting in to their criteria of the finance company.
h) So the money was disbursed to XYZ by the finance company and from it XYZ advanced Rs.75,15,227.00 to ABC to meet its repayment needs which were in connection with the "continued business" .
i)XYZ has no surplus or reserves.
j) So does this case qualify under section 2(22) ( e) for "Deemed Dividend" ?

Querist : Anonymous

Querist : Anonymous (Querist)

11 March 2014 Any one who can oblige by replying my query about "Deemed Dividend" posted on 14-2-2014 ?

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