Supreme Court in Madhur Housing and Development Co. on 05-10-2017 has held that loan/advance by closely held company to another company in which shareholder of closely held company having more than 10% voting power also had substantial interest in the borrowing company, although is taxable as deemed dividend income but the income is taxable in the hands of shareholder and not the borrowing company

Presumption underlying the deeming provision is that that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The legal fiction in s. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of, a “shareholder”.

 

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