Income – Deemed dividend – Section 2(22)(e) – Loan to shareholder – Assessee shareholder let out premises to company – Company incurred substantial expenditure on repair and renovation of premises – Not a case of advance or loan – No deemed dividend in the hands of the shareholder:

The assessee holding 76.26% of the shareholding of a company had let out a premises owned by him to the company. The company incurred expenses of Rs. 2.51 crore towards construction and improvement of the premises which it continued to use. The Assessing Officer held that the amount of Rs. 2.51 crore was paid on behalf of the assessee. He therefore treated the sum of Rs. 2.51 crore as deemed dividend u/s. 2(22)(e) of the Income-tax Act, 1961 and made the addition. The Tribunal deleted the addition and held that it is not deemed dividend.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) No money had been paid to the assessee by way of advance or loan nor was any payment made for his individual benefit. The fact that the company had spent money had not been called into question. Thus, it was deemed that the company did spend Rs. 2.51 crore towards repairs and renovation on the premises owned by the assessee. There was no dispute about the fact that the company had taken the premises on rent.

ii) Thus, it was a case where the asset of the assessee may have enhanced in value by virtue of repairs and renovation but this could not be brought within definition of the advance or loan to the assessee. Nor could it be treated as payment by the company on behalf of the assessee shareholder or for the individual benefit of such shareholder.”