Deemed dividend

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Abhijit Rane

Abhijit Rane (Querist)
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17 January 2012 Q) Applicability of Deemed Dividend to private Limited Companies.?

Plz guide..

Regards

Abhijit

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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17 January 2012 Private Limited Companies generally give Loan or Advance to their director and family members who are again shareholders holding 10% or more voting power or to a concern in which such shareholder has substantial interest. Such loan or advance is treated as deemed dividend covered under section 2(22)(e) and taxable in the hands of shareholders or concern as the case may be.

Section 2(22)(e) of Income Tax Act 1961:

“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) [made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, 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”

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