Deemed Dividend

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This query is : Resolved

mk (Querist)

24 December 2008 * Mr. A is holding 25% shares in XYZ Pvt. Ltd.

* The company has Rs. 20 lacs in its Reserve and Surplus on 31.03.2008 which includes Share Premium of Rs. 5 Lacs.

* Mr. A is also partner in M/S ABC & Co. and his share in the firm is 60%.

* The said XYZ company gave a loan of Rs. 18 lacs to ABC & Co. out of which the firm paid Rs. 16 lacs to Mr. A.

(a) Will the provision of section 2(22) (e) of the Income Tax Act be applicable for this transaction?

If yes, what will be the amount of deemed dividend in the hands of Mr. A?

In another situation XYZ Ltd. has repaid of Rs. 18 lacs against loan taken by it from ABC & Co. and ABC & Co. in turn gave loan to MR. A by debiting his capital account.

Whether the department is right in arguing that XYZ Ltd. Co has given Loan to Mr. A via conduit and hence the provisions of sec. 2(22)(e) are applicable and Mr. A is liable to tax for amount received to be considered as deemed dividend ?

Whether TDS provisions are applicable for deemed dividend.?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

24 December 2008 a) Provisions of section 2(22)(e) attracts.
Deemed dividend is to the extent of
accumulated profits ie.Rs.15 lakhs.

Mr.A has to prove that the monetary
transactions between the company and
the firm is not to circumvent the
provisions of section 2(22)(e) otherwise
the view of the department will sustain.

TDS Provisions are applicable. Shall
forward case laws later.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)

24 December 2008 The amount of advance can be treated as deemed dividend u/s 2(22)(e) of the Income Tax Act if the company is having accumulated profits available for distribution of dividends to the tune of advances. In that case the amount will be taxable in the hands of director/shareholder u/s 56 of the Income Tax Act. Also, the company will have to deduct Tax at Source u/s 194. Further, dividend distribution tax u/s 115O is not payable in such a case

C A GROUP COACHING

C A GROUP COACHING (Expert)

24 December 2008 ADVANCES GIVEN BY CO.TO FIRM SHALL NOT BE QUALIFIED AS DEEMED DIVIDEND
IF YOU CAN GET HOLD OF A SC JUDGEMENT OF JHAMU SUGANDH IN CASE OF DEEMED DIVIDEND PLS SEE THE SAME IT IS VERY EXHASTIVE ON DEEMED DIVIDEND
HAVE RECENTLY DEALT WITH SUCH CASE AST REOPENED U/S148
CHANDRAKANT AMBANI
BOMBAY
9819408963 / 9821240674

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