Income tax

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RAJENDRA JAIN (Querist)
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26 November 2012 My query

Mr A prop.of A Co.and also a dierctor in A pvt Ltd. A Pvt Ltd give advance say Rs.1 to Mr A, and then Mr A invested that money in property without paying interest and tds.

1) What is the tax implication in above
advance
2) is there any tax liablity aries in the hands of Mr A

Chintan Shah

Chintan Shah (Expert)
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26 November 2012 In this case, Mr. A will not be subject to any tax implication in respect of said advance. However, the answer will change if Mr. A is also a shareholder in the Company as provisions of deemed dividend will get attracted.

As regards the company, the company will have to prove why interest has not been charged on such advance. If there is a business nexus then there will be no addition on account of notional interest. Reliance can be placed on Supreme Court decision in the case of S.A. Builders (288 ITR 1).

However, if the Company is unable to prove the business nexus then notional interest will be added to the total income.

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