deemed dividend 2(22)(e)

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CA BIREN SHAH (Querist)
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25 May 2010 hello sir..
a company X Ltd.
two share holder:1. Mr X holding 4%
2. Mrs A holding 96%(mother of Mr X)
now company has advanced the sum of rs. 50 lacs to Mr X HUF.

whether it will attract sec 2(22)(e)

taxindiaconnect

taxindiaconnect (Expert)
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25 May 2010 The section 2(22)(e) is reproduced below -

any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 92[made after the 31st day of May, 1987, by way of advance or loan to a shareholder 93 , being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits 94

From the perusal of the above it can be observed that the it applies if the payment is made to a shareholder holding more then 10% voting rights in the company. Share holder has defined in the case of CIT Vs CO Mudaliar 83 ITR 170 to mean a registered shareholder not the beneficial shareholder and not the beneficial owner. Mr. X is a registered shareholder in this case having only 4% shares. Thus the provision of section 2(22)(e) does not apply to this transaction.

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CA Shiv

CA Shiv (Expert)
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25 May 2010 also in HUF Mr. X is working in a capacity of karta.... so this provisions wont apply

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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25 May 2010 AGREE WITH EXPERTS. SEC 2(22)(e)is attracted when shareholder holding greater than or equal to 10% of shares in company and any loan or advance given to him. In this case above sec wont be attracted as loan is given to MR. X HUF.

CA BIREN SHAH

CA BIREN SHAH (Querist)
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26 May 2010 but whrther it will be deemed dividend in the hand of Mrs A(Mother)bcoz she is member of Mr X HUF

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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26 May 2010 No it will not be treated as deemed dividend in the hands of Mrs A. Since she had not been the beneficiary of the loan. it will not matter that she is a member of HUF.

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