Applicability Of Section 2(22)(e) Of It Act, 1961 Qua Amount Received by an Assessee-Director From His Company

10. We have carefully considered the rival submissions in the light of the material placed before us. Section 2(22)(e) read as under:-

Section 2(22) (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than then per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

11. So tar as it relates to other conditions, there is no dispute and the only basis on which the invocation of Section 2(22) is contested is that the amount given to the assessee was neither lean nor advance and it -was not for the individual benefit of the shareholder. It has been the contention of the assessee that a sum of Rs.30 lac was given to him for the purpose of making advance with respect to certain land dealings which were proposed to be entered into by the company through the assessee. The assessee is a Director in the company and could lawfully execute certain agreements on behalf of the company, if he is so authorized. The sum of Rs.20 lac was given by way of imprest to enter into a transaction which was for the benefit of the business of the company i.e., acquisition of a premises required for the purposes of business of the company. Such payment was made in pursuance of resolution passed by the company a copy of which was also placed on record. It is not the case of the Revenue that such resolution did not happen or it was an afterthought story. No material has been brought on record to suggest that what was explained by the assessee was incorrect. The sum has been treated as deemed dividend simply for the reason that it was given to the assessee. The Co-ordinate Bench has considered this issue in the case of CIT vs. Lakra Brothers (supra) wherein it has been observed that the definition of Section 2(22)(e) cannot be stretched to include even legitimate transactions carried out in the ordinary course of business where the intention is neither to give a shareholders, it is observed that the important words in the Section are “loan or advance” and for individual benefit of such shareholder. The loan is something different from the debt. For a loan, there must be a lender, borrower as well as a contract/agreement between the parties for the return of the loan amount. Keeping in view the said decision of coordinate Bench and the facts of the present case, it is observed that the transaction was in the ordinary course of the business of the company, there was no intention of the company to give a loan or advance to the assessee for his individual benefit, if has been demonstrated before us that in the bank account of the assessee in which the said amount of Rs.30 lac was credited was always having balance of more than Rs.30 lac, so even for a short period assessee has not derived any benefit or it cannot be said that the said amount was given to the assessee by the company for his individual benefit. The amount was lying in the bank account of the assessee which was not utilized at all for any purpose. It is, therefore, clear that the real intention of the company was to purchase the premises and there was no other hidden purpose. It also cannot be the case of revenue that returning of the amount was afterthought as the amount was returned by the assessee within a short span of a week. There is no material on record to suggest that the ‘transaction of the company with the assessee was in any way arranged to give any benefit to the assessee. The amount was paid for a very short period for specific purpose and there is documentary evidence on record to substantiate the explanation of the assessee that the amount was given for the business purposes of the company i.e., to purchase a suitable business premises and assessee could validly act on behalf of the company as the said act of assessee would be in accordance with the authority held by him through resolution of the Board of Directors of the company. In our opinion, applying the ratio of decision of Chandigarh Bench in the case of DCIT v. Lakra Brothers the amount of Rs. 30 lac could not be considered to be deemed dividend in the hands of the assessee. The provision of Section 2(22)(e) were not applicable.