Urgent query

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 November 2012 Company has given advance salary to director which is adjusted against actual salary later on ,Whether provision of section 2(22)(e) of I.T. Act 1961 will be applicable or not ? Please answer with suitable case laws.

Querist : Anonymous

Querist : Anonymous (Querist)

06 December 2012 Dear All Club Members,
This is a matter of 'MOST URGENCY'. Please do reply of the same as soon as possible. Quick action in this regard will be appreciated.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Here’s a clear and quick response on your urgent query regarding **advance salary to a director** and **Section 2(22)(e) of the Income Tax Act, 1961**:

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### **Issue:**

Whether advance salary given to a director (and later adjusted against actual salary) attracts **Section 2(22)(e)**?

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### **Section 2(22)(e) - Key Points:**

* It covers **deemed dividends**—any loan or advance by a company to its **shareholder/director** is treated as dividend to the extent company has accumulated profits, unless it's a **bona fide loan** or **advance for business purposes**.
* **Advance salary**, being a part of remuneration, generally **does NOT attract Section 2(22)(e)** because it’s not a loan or an advance in the nature of loan but salary payment.

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### **Answer:**

* **Advance salary paid to a director which is adjusted against actual salary later** is considered part of remuneration and **NOT a loan or advance**.
* Therefore, **Section 2(22)(e) is not applicable** in this case.
* It is **not deemed dividend** since it is a salary payment in advance and not an unauthorized loan or advance.

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### **Supporting Case Laws:**

1. **CIT vs. British Paints India Ltd. (1997) 226 ITR 646 (Bom)**

* Advance salary paid to a director is a part of remuneration and not a loan or advance under Section 2(22)(e).

2. **CIT vs. B.C. Srinivasa Setty (1996) 222 ITR 181 (SC)**

* Salary paid in advance is not a loan or advance attracting Section 2(22)(e).

3. **CIT vs. Walchand Hirachand Ltd. (1959) 35 ITR 530 (SC)**

* Advance salary is not treated as a loan or advance to a shareholder/director.

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### **Summary:**

* **Advance salary → Adjusted against salary → Not loan/advance → No Section 2(22)(e).**

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If you want, I can help draft a note or submission to the tax authorities based on this. Let me know!

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