The CBDT vide Circular No.19/2017 dated 12/06/2017 provided a settled view on deemed dividends u/s section 2(22)(e).
The section reads as follows:
Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum 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 ten 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 profit.
Based on the various decisions in courts namely CIT vs. Creative Dyeing & Printing Pvt. Ltd., CIT vs Amrik Singh, CIT, Agra vs Atul Engineering Udyog the board has settled that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)( e) of the Act.
It also provided that henceforth appeals may not be filed on this ground.
Find the entire circular below: