14 November 2011
1)I have a following situation. In X Pvt. Ltd. voting right pattern is as follows: Mr A: 25% Mr.B: 30% Mr.C: 10% MR.D: 35% These three person are also member in another pvt ltd(Say Y Pvt.Ltd) in which shareholding pattern is as follows:
Mr A: 30% Mr.B: 60% Mr.C: 10% X Pvt Ltd given loan/advances to Y Pvt Ltd Say Rs. 10 lakh. Then how it is to be/in which ration taxed as deemed dividend in each share holder hand?
2) X pvt Ltd has paid taxes of Y Pvt Ltd. Is it to be treated as deemed dividend?
14 November 2011
The three shareholders are common in Ms X Pvt Ltd and Y Pvt Ltd and holding beneficial interst of 10% or more. The amount of loan / advance of Rs 10 lakhs will be treated as deemed dividend in the hands of X Pvt Ltd and would require withholding tax u/s 194 @ 10%. The ratio would be 25:35:10.
The next issue of tax payment by X Pvt Ltd of Y Pvt Ltd. This payment is nothing but amount advanced by X Pvt Ltd to Y Pvt Ltd to meet its payment obligations. In my view the tax treatment is same as above.
14 November 2011
Its case of deemed dividend and taxable in hand of those three shareholders in ratio of their holding. Income charged under other source and to be taken in normal slab.
15 November 2011
Thanks for reply, Loan/advances will be treated as deemed dividend in the hands of Y pvt ltd shareholders if they have substantial interest(20% or more) in Y Pvt Ltd and 10% or More voting right in X Pvt Ltd. In the above question since A,B,C holds voting right in X Pvt ltd but only A&B hold substantial interest in Y Pvt Ltd. Then why we will distribute on the basis of voting right in X Pvt Ltd. instead of shareholding pattern in y pvt ltd in the ratio of 30:60. So kindly if you have any reference or judgement share with me.
15 November 2011
Thanks for reply, Loan/advances will be treated as deemed dividend in the hands of Y pvt ltd shareholders if they have substantial interest(20% or more) in Y Pvt Ltd and 10% or More voting right in X Pvt Ltd. In the above question since A,B,C holds voting right in X Pvt ltd but only A&B hold substantial interest in Y Pvt Ltd. Then why we will distribute on the basis of voting right in X Pvt Ltd. instead of shareholding pattern in y pvt ltd in the ratio of 30:60. So kindly if you have any reference or judgement share with me.
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