Sec 2(22)e is not attracted on Security deposit made in normal course of business

From a reading of Section 2(22)(e) of the Act, it is apparent that it has the effect of bringing to tax as dividend where any payment of any sum is made by way of advance or loan to a shareholder in which a shareholder holds a substantial interest or any payment is made on behalf of a shareholder or any payment is made for the individual benefit of a shareholder. Any of the above three conditions would be taxed if the “advance” or “loan” is made to a shareholder and the Company possesses a cumulative profit at the time it makes the payment and, therefore, such payment would be deemed to be a dividend only to the extent of such profits.

The Tribunal, after considering the matter in detail found that the assessee firm was having a business dealing with its sister concern, which was apparent from the books of account of the assessee,  which showed various job works being carried out by the sister concern. The Tribunal also  found that the sister concern was bound to make payment to M/s Gas Authority of India Ltd. of the minimum contracted quantity to the extent of 80% of the natural gas irrespective of its use. The Tribunal further found that a commercial transaction had taken place between the assessee and its sister concern whereby the assessee was getting in return concessional rate of electricity @ Rs.2/- per unit and, for such business expediency, the sister concern had furnished a refundable interest free security deposit to the assessee. The Tribunal found, that on account of this commercial transaction the sister concern had paid Rs.80 lacs to the assessee as interest free refundable security deposit, which was subsequently refunded by the assessee to the sister concern and, consequently, held that the said amount given by the sister concern was a security deposit and not a loan or an advance. The finding arrived at by the Tribunal is a finding of fact based on appreciation of evidence, which has not been doubted by the appellant.