deemed dividend u/s 2(22)(e)

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CA HETAL DEDHIA (Querist)

18 April 2009 There are more than 2 directors in x pvt ltd.in which mr.A holds 25% of shares and mr.B holds 25% of the shares.They have taken loan from company which is chargeable u/s 2 (22) (e). Mr. A has loan of Rs. 1cr and Mr. B has taken loan od Rs.75 lacs The total amount of accumulated profits is 1cr in case 1 and 50lacs in case2. What is the amount of demed dividend to be charged to Mr. A & Mr.B in both the cases? Under what basis is it charged?
(please specify the ratio in which it will be charged)

Needs experts advice.

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)

18 April 2009 To avoid dividend ditribution tax especially private limited companies were using the mode of loans to directors either interest free or nominal interest loans for the movement of funds from company to shareholders / directors.

To curb this the income tax has introduced section 2(22) (e) wheren if the company gives loan to directors or shareholders and if the company is dealing in giving loans to public then the amount will be treated as deemed dividend.

The deemed dividend concept will apply to accumulated profits.

In your case you have given as loan is Rs.1.75 Crores to both.

Since the accumulated profits are less then the accumulated profits will be treated as deemed dividend.

In case 1 1 Crore will be deemed dividned to charged proportionately to a and b

similarly in case 2 0.50 lacs will be deemed dividend to be charged proportionately.

Some assesing officers will take the proportionate profit to the date of the loan and will deal with above section accordingly.

CA HETAL DEDHIA

CA HETAL DEDHIA (Querist)

18 April 2009 but in what proportion?????????

proportion to no. of shares or proportion to amount of loan or composite ratio assuming both have taken loan on last date