Capital gain in case asset is distributed u/s 2(22)(d).
This query is : Resolved
27 July 2013
Hi Friends,
I am a CA Final Student.
My query is -
Where a company distributes any asset being "Capital Asset" in course of reduction of capital, such distribution is taxed u/s 2(22)(d) in hands of company. Company is also liable to capital gains as it has transfered a "Capital Asset", in addition to CDT.
How to compute the "Sale Consideration" received by company which would be used to calculate the capital gains in hands of company?
Waiting for reply....
Thanks in advance...
I am a CA Final Student.
My query is -
Where a company distributes any asset being "Capital Asset" in course of reduction of capital, such distribution is taxed u/s 2(22)(d) in hands of company. Company is also liable to capital gains as it has transfered a "Capital Asset", in addition to CDT.
How to compute the "Sale Consideration" received by company which would be used to calculate the capital gains in hands of company?
Waiting for reply....
Thanks in advance...
28 July 2013
As per sec 2(22)(a) dividend include any distribution of assets by a co. to its sh/hldrs to the extent the co. possesses accumulated profits capitalised or not.
when a co. distributes assets to sh/hldrs then, it amt to gift & as per sec 47 no CG shall arise to co. for sh/hldrs COA of Assets shall be cost of such assets to co.
Hope ur doubt clear.
when a co. distributes assets to sh/hldrs then, it amt to gift & as per sec 47 no CG shall arise to co. for sh/hldrs COA of Assets shall be cost of such assets to co.
Hope ur doubt clear.
02 August 2013
I had doubt in sec 2(22)(d).
Since company is going for reduction in share capital, the liability of company towards its shareholders is reducing and company is definitely gaining a consideration for transfer of capital asset.
I am not sure whether to treat this transfer as gift..
Further I am also not sure whether we can use the concepts of section 2(22)(a) in section 2(22)(d)....
Since company is going for reduction in share capital, the liability of company towards its shareholders is reducing and company is definitely gaining a consideration for transfer of capital asset.
I am not sure whether to treat this transfer as gift..
Further I am also not sure whether we can use the concepts of section 2(22)(a) in section 2(22)(d)....
18 July 2024
Section 2(22)(d) of the Income Tax Act, 1961 pertains to deemed dividends and includes within its ambit various transactions where payments or distributions are made by a company to its shareholders, thereby reducing the accumulated profits or reserves of the company. Let's address your queries regarding Section 2(22)(d):
### Understanding Section 2(22)(d):
1. **Applicability**: Section 2(22)(d) is triggered when a company makes any payment, including reduction of capital, to its shareholders that results in the distribution of accumulated profits or reserves.
2. **Reduction in Share Capital**: When a company reduces its share capital, it typically involves returning capital to shareholders. This reduction can be either from accumulated profits or reserves of the company.
3. **Treatment as Gift**: Section 2(22)(d) does not pertain to gifts. It specifically deals with payments or distributions made by a company to its shareholders that are deemed as dividends, thereby subject to taxation in the hands of the shareholders.
### Relationship with Section 2(22)(a):
- **Section 2(22)(a)** pertains to deemed dividends when a company directly or indirectly distributes any accumulated profits to its shareholders. This includes loans or advances made by a company to its shareholders.
- **Section 2(22)(d)** complements Section 2(22)(a) by covering additional scenarios where payments or distributions by a company to its shareholders are deemed as dividends.
### Key Points:
- **Consideration for Transfer**: In the context of Section 2(22)(d), if a company reduces its share capital and distributes the proceeds to its shareholders, it can be treated as a distribution of accumulated profits or reserves, thereby falling under the purview of deemed dividend.
- **Gift vs. Deemed Dividend**: Gifts are generally not covered under Section 2(22)(d). The section focuses on transactions where there is a distribution of company's accumulated profits or reserves.
- **Application of Concepts**: While Section 2(22)(a) and Section 2(22)(d) both deal with deemed dividends, they cover different scenarios. Section 2(22)(d) specifically applies to reductions in share capital and other forms of distributions that reduce the company's reserves or profits.
### Conclusion:
Section 2(22)(d) of the Income Tax Act is aimed at preventing tax evasion by treating certain transactions between companies and their shareholders as dividends, even if they are not labeled as such. It is essential to differentiate between gifts and distributions covered under Section 2(22)(d), and to understand how reductions in share capital can lead to deemed dividends under this provision. For specific cases and detailed advice, consulting with a tax advisor or chartered accountant is recommended to ensure compliance with tax laws.
### Understanding Section 2(22)(d):
1. **Applicability**: Section 2(22)(d) is triggered when a company makes any payment, including reduction of capital, to its shareholders that results in the distribution of accumulated profits or reserves.
2. **Reduction in Share Capital**: When a company reduces its share capital, it typically involves returning capital to shareholders. This reduction can be either from accumulated profits or reserves of the company.
3. **Treatment as Gift**: Section 2(22)(d) does not pertain to gifts. It specifically deals with payments or distributions made by a company to its shareholders that are deemed as dividends, thereby subject to taxation in the hands of the shareholders.
### Relationship with Section 2(22)(a):
- **Section 2(22)(a)** pertains to deemed dividends when a company directly or indirectly distributes any accumulated profits to its shareholders. This includes loans or advances made by a company to its shareholders.
- **Section 2(22)(d)** complements Section 2(22)(a) by covering additional scenarios where payments or distributions by a company to its shareholders are deemed as dividends.
### Key Points:
- **Consideration for Transfer**: In the context of Section 2(22)(d), if a company reduces its share capital and distributes the proceeds to its shareholders, it can be treated as a distribution of accumulated profits or reserves, thereby falling under the purview of deemed dividend.
- **Gift vs. Deemed Dividend**: Gifts are generally not covered under Section 2(22)(d). The section focuses on transactions where there is a distribution of company's accumulated profits or reserves.
- **Application of Concepts**: While Section 2(22)(a) and Section 2(22)(d) both deal with deemed dividends, they cover different scenarios. Section 2(22)(d) specifically applies to reductions in share capital and other forms of distributions that reduce the company's reserves or profits.
### Conclusion:
Section 2(22)(d) of the Income Tax Act is aimed at preventing tax evasion by treating certain transactions between companies and their shareholders as dividends, even if they are not labeled as such. It is essential to differentiate between gifts and distributions covered under Section 2(22)(d), and to understand how reductions in share capital can lead to deemed dividends under this provision. For specific cases and detailed advice, consulting with a tax advisor or chartered accountant is recommended to ensure compliance with tax laws.
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