Saturday, April 14, 2012


Raj Kumar Gupta v/s Commissioner of Income Tax (Delhi High Court), Topic Deemed Dividend Section 2(22)(e) ITA No. 224/2012 and 225/2012 and 226/2012, Date of Order: 30.03.2012
The Assessee an individual has received and interest free loan/advance from a company in which his holding was 20.56% although the company has deployed major of its assets in loans and advances and it was contended that the advance was in the normal course of business.


any advance or loan made by a company to a shareholder or a concern in which the shareholder has a substantial interest would not be regarded as divided (sic.) if the advance or loan was made by the lending company, if two conditions are satisfied, namely, (i) that the loan or advance was made by lending company in the ordinary course of business; (ii) lending of money is a substantial part of the business of the lending company. Thus, the conditions are that the loan and advance must be by the lending company in the ordinary course of its money lending business and this business should be substantial part of business.

The interest free loan and advances made to the group concerns or sister concerns or related parties cannot be termed as a business of lending money. No business can be carried out without the intention of profit or earning. In cases relied upon by the assessee, cited supra, the loan and advances were interest bearing. In this case, the loan and advances made to the assessee were interest free. Therefore, in our considered view, these advances or loan received by the assessee in its proprietorship concerns are not made by the lending company in the ordinary course of money lending business. It was thus decided against the assessee