Satish is the director of Games Pvt. Ltd. holds 75% of its paid up capital of ₹10 lakh. The balance as at 31st March, 2022 in general reserve was ₹15 lakh. The company on 1st April, 2022 gave an interest free loan of ₹10

Deemed Dividend under Section 2(22)(e) of the Income-tax Act, 1961: Section 2(22)(e) of the Income-tax Act, 1961, provides that any payment by a company in which the public are not substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of not less than 10% 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, or any payment by way of advance or loan on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company possesses accumulated profits, shall be treated as 'deemed dividend'. In this case: Games Pvt. Ltd. is a company in which the public are not substantially interested. Satish is a director and holds 75% of its paid-up capital (₹10 lakh), making him a beneficial owner of more than 10% of the voting power. The company gave an interest-free loan of ₹10 lakh to its Manager. The Manager, in turn, advanced the same amount of loan to Satish. This constitutes a payment by way of advance or loan on behalf, or for the individual benefit, of Satish, who is a substantial shareholder. The company had general reserves of ₹15 lakh as at 31st March, 2022, which represents accumulated profits. The loan amount of ₹10 lakh is within the limit of accumulated profits. Based on the above, the transaction falls squarely within the ambit of Section 2(22)(e). The Hon'ble Supreme Court in the case of 'L. Alagusundaram Chettiar vs. CIT (2001) 252 ITR 893' has held that such indirect advances to a shareholder through an intermediary would be treated as deemed dividend. Therefore, the action of the assessing officer in treating the amount of advance (₹10 lakh) as deemed dividend in the hands of Satish is correct .