03 July 2015
How loan and advance given to a director or shareholder is treated as deemed dividend or distribution of accumulated profit? what was the logic behind it to treat as deemed dividend? 2. Are pvt companies exempted from this section?
05 July 2015
The components of deemed dividend Sec.2(22)(e) of Income Tax Act are,
1. Payment made by a closely held company 2. By way of Loan or advance to a shareholder 3.Who is beneficial owner of shares holding not less than ten percent of the voting power OR 4.To any concern in which such shareholder is a member/partner and in which he has substantial interest(20% or more stake in profits)OR 5.Any payment by any such company on behalf of or for the individual benefit of any such shareholder 6. To the extent to which the company in either case possesses accumulated profits
shall be treated as deemed dividend.
Thus, the deeming provision arises for payment by closely held company to shareholders who have shareholding of 10% or more and to the extent of accumulated profits of the company.
The amount is taxable in the hands of invididual shareholders. No exemption under section 10 is available. The section is purely applicable to private limited companies.
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