deduction of expenses out of dividend

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Deepak Bhardwaj (Querist)
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18 January 2011 Under Income from other sources
When I started dividend, there was written that " dividend means sum received by a shareholder proportionate to his shareholding in a company out of the total sum distributed" there was also written that "section 2(22) gives an inclusive definition of Dividend" which covers 2(22)(a)' to 2(22)(d)' which we call it Deemed dividend.

So by reading these lines I understood that dividend includes any payment in cash and as well as Deemed dividend too. And I also understood that it is exempt u/s10(34).

But, When I started doing "Deductions for the expenses from dividend income" sec 57(i) and 57(iii)
It was written there that "The following expenses can be claimed as deductions from Gross dividend income other than the dividends referred to in section 115-O"

Confusion 1) here "other than the dividends referred to in section 115-O means???? because if I am not mistaken section 115-O only tells about the "Tax on Distributed profits of domestic companies " and does not tell anything about the kinds of dividend etc so what other dividends they are referring to by mentioning 115-O????

2) so what kind of dividend they are referring by mentioning 115-O??

It was also written that "Since dividends referred to in section 115-O (ie. dividends covered under section 2(22)(a),(b),(c) and (d) are exempt in the hands of the shareholders, no deduction of any expense referred to in section 57 shall be allowed"

C) since deduction for expenses cannot be claimed out of dividend referred in 2(22), then what other dividends they are talking about to claim the deductions for such expenses???? because there is no other dividend is mentioned except 2(22) a to d ie. deemed dividend...

so somebody please elaborate.... actually iam getting idea but still feeling like that iam stucked..

thanks and regards
Deepak

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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18 January 2011 Confusion 1) section 115-O only tells about the "Tax on Distributed profits of domestic companies " and does not tell anything about the kinds of dividend etc----

Ans. Section 115-O tells about the distribution of profits by way of dividends (whether interim or otherwise).
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You are mistaken in taking as section 115-O only tells about the "Tax on Distributed profits of domestic companies " as it also tells something about the kinds of dividend also.
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These dividends are to be understood as interim dividend or dividend declared by a company.
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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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18 January 2011 Confusion 2:
under section 2(22)(a),(b),(c) and (d) are exempt in the hands of the shareholders,

THESE ARE TAXABLE IN THE HANDS OF RECEIVER UNTIL DDT HAS NOT BEEN PAID BY THE COMPANY.

Deepak Bhardwaj

Deepak Bhardwaj (Querist)
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18 January 2011 With due respect to you Mr Bafna. I do not find myself agreeing with your view that 115-O also tells about some kinds of dividend also,, if it is so sir,, can you provide me any link whereby I can see the whole explanation of this section to update my knowledge. Whereas after my study I think that 115-O only tells about the tax to be paid by the company on the amount declaring as dividend(whether interim or other).
and secondly, if dividends are exempt then what deductions for expense they are providing to be deducted from the dividend income u/s 57??? since we cant deduct expense from the exempt income..
with regards
deepak

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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18 January 2011 Dear Deepak,
1. You are right in quoting that Section 115-O tells about tax to be paid by the company on dividend.
2. You might be knowing that Section 10(34)
exempts such dividend on which DDT is paid.
3. In section 57, dividend as referred to in Section 115-O, implies that , such dividends
on which DDT is paid and by virtue of Section 10(34), the said dividend is exempt.
4. Now come to certain dividends which are taxable and notoriously known as deemed dividends and are found particularly in Section 2(22)(e).
5. Except 2(22)(e), there are certain more taxable dividends which you have mentioned
by referring S2(22)(a) to(d)
6. Briefly it can be said that there are 2 categories of dividend -
(a) Dividend as referred in 115-O (DDT paid), and (b) dividends without DDT.

7. Deduction of Expenses as referred to in U/s 57 is in reference to 2nd category of dividend.
8. The expenditure which can be claimed has been also mentioned in the Section 57 itself as -any reasonable sum paid by way of commission or remuneration to bankers or any other person for the purpose of realising such dividends.
9. Again you are right in asserting that virtually there is no such expenditure which we can deduct.
10.As such, We have not to claim any expenditure if there is no such expenses.

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