Navnit Lal Javeri v K.K. Sen

• A closely-held company made loans/advances to Navnit Lal Javeri, a shareholder-director with substantial interest
• The company had accumulated profits out of which the loans were made
• The AO invoked the deemed dividend provision treating the loan as dividend income
• Javeri challenged the assessment arguing it was a genuine loan, not a dividend

1. Whether loans/advances by a closely-held company to a shareholder constitute "deemed dividend"
2. Whether the form (loan) defeats the substance (distribution of profits to a shareholder)

• S.2(6A) (now S.2(22)(e)) is a deeming provision designed to prevent closely-held companies from distributing profits in the guise of loans
• Where a company has accumulated profits and makes advances to a shareholder with substantial interest, the advance is deemed a dividend to the extent of profits
• The shareholder's intent (genuine loan vs disguised dividend) is irrelevant; the section operates automatically
• Amount taxable as deemed dividend in Javeri's hands

The deeming fiction serves an anti-avoidance purpose: prevent closely-held companies from benefiting shareholders through loans instead of taxable dividends. Once the conditions are met (accumulated profits exist, advance made to substantial shareholder), the fiction is triggered regardless of the parties' characterisation. Form yields to substance through statutory mandate.