If a pvt. company provides security to a bank, on the basis of which the bank gives loan to a director who is also a majority shareholder, would the loan amount be considered as deemed dividend ?
No, the amount of loan shall not be considered as deemed dividend . The reason is that Section 2[22][e] is applicable only in case there is release of asset of the company . Giving security does not entail release of asset.
Yes , in case bank encash the security, it shall mean release of asset and Deemed Dividend provision shall be applicable in that case. But remember, if there is no accumulated reserve of profit, there can not be deemed dividend.
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