Deemed dividend

This query is : Resolved

Shivish Verma (Querist)
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14 January 2012 Hi Friends.
My query is regarding deemed dividend u/s 2(22)(e)

Xyz ltd has given loan to company Abc ltd.

Mr. A has 34 % share in Xyz ltd (the lender) and 16.47 % share in Abc Ltd(the borrower).

Further, Mr A's Father is also having 0.02% share in xyz ltd (the lender) and 66 % share in ABC ltd. (the borrower).

Can amount of loan be treated as deemed dividend u/s 2(22)(e) in the hands of Mr. A ?
In other words, his father's share (66%) in borrower company i.e. Abc Ltd. be clubbed in the hands of Mr. A for calculating substantial interest?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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14 January 2012 A is having substantial interest in both the companies.
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The names "XYZ Ltd" and "Abc Ltd" shows that, in these companies Public is substantially interested. S 2(22)(e) is not applicable to such companies.
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However, assuming that, public are not substantially interested in both the companies, the loan given by XYZ ltd can not be said as it is given to Mr A. It has been given to XYZ ltd. XYZ ltd is not covered under the definition of " concern" as given vide Explanation-3 to section 2(22)(e).
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It is not a case of deemed dividend.
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