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December 2011

Deemed dividend: Section 2(22)(e) of Incometax Act, 1961: A.Ys. 1992-93 and 1993-94: Advance on salary received by managing director: Not assessable as deemed dividend.

By K. B. Bhujle
Advocate
Reading Time 1 mins
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[Shyama Charan Gupta v. CIT, 337 ITR 511 (All.)]

The assessee, the managing director of a company, received advances of salary and commission on profits. The Assessing Officer treated them as deemed dividend u/s.2(22)(e) of the Income-tax Act, 1961. The Tribunal held that the assessee was not entitled to claim receipt of advance against commission and directed the Assessing Officer to redetermine the deemed dividend in the hands of the assessee after adjusting the salary.

On appeal by the Revenue, the Allahabad High Court upheld the decision of the Tribunal and held as under: “We do not find any error in the findings recorded by the Tribunal that the advance towards salary, which was due to the assessee and was credited to his account every month could not be treated as deemed dividend, but the advance of commission on profits over and above that amount drawn during the course of the years before the profits were determined and accrued to him would be treated as deemed dividend subject to tax. The amount was not treated as a separate addition in the hands of the assessee.”

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