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

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Querist : Anonymous

Querist : Anonymous (Querist)

11 May 2011 Co. X
Shareholders
A 10% Shares B 30% shares
C 60% shares

Co.Y
Shareholders
E 40% shares
B 25% shares N 35% shares

Co. X gives loans & advances of Rs. 20,00,000 to Co. Y . Can this loans and advances be considered as deemed dividend on the ground that shareholder B is common in both the companies.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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11 May 2011 for applicability of section 2(22)(e) the loan shld be given to shareholder \in this case loan is given to company not a shareholder hence sectio 2(22)(e) will not apply

CA MANOJ GUPTA
JODHPUR
09828510543

Querist : Anonymous

Querist : Anonymous (Querist)

11 May 2011 Sir,pls. clarify this point.....However, undertaking such transfer of funds carries with it income-tax implications, which should be kept in mind. The provisions of the Income-Tax Act, 1961 (the Act) lay down that in case a loan or advance is given by a closely held company to another concern where there is a common shareholder having a substantial interest, the loan or advance shall be taxable as deemed dividend, to the extent of accumulated profits of the concern granting the loan or advance...

CA MANOJ GUPTA

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11 May 2011 THE LOAN MAY BE DEEMED AS DIVIDEND BECAUSE B IS THE COMMON SHAREHOLDER AND HOLDS MORE THAN 20 PERCENT SHARES

Querist : Anonymous

Querist : Anonymous (Querist)

11 May 2011 Section 2(22)(e) is deeming section which deemed any loan or advance by closely held company to a shareholder (not less than 10% shareholding) or concern in which the shareholder is substantially interested (not less than 20% interest) as dividend.

Sir,in the above, it is said that " or concern in which shareholder is substantially interested holding more than 20% interest".....so in my opinion co.X is giving loan to co.Y in which shareholder B is substantially interested and hence such loan shall be deemed as dividend.

CA MANOJ GUPTA

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20 May 2011 RECENTLY IN ANKITECH METAL CASE THE DELHI HIGH COURT HAS HELD THAT IN SUCH CASES THE DIVIDEND CAN BE DEEMED ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT THE COMPANY RECEIVING THE LOAN

CA MANOJ GUPTA
JODHPUR
09828510543

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