Section 2(22)(e)

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shehzad (Querist)

03 June 2009 Dear Experts,
A company has advanced loans to persons covered under section 2(22)(e). So it contravenes this section. It also contravenes section 295 of the Companies Act.

My question is:
1) What can be done to save a company from the repercussions of violation of both this sections.
2) Is there some way out legal or other, so that company escapes the penalties, etc. from the violations.

Please help by replying ASAP
Thanks & Regards,

vinod kumar lalwani

vinod kumar lalwani (Expert)

04 June 2009 hi shehzad

with ref. to your query

Section 2(22)(e) not prohibits a company to give a loan or advance to the persons covered by the section. it says that the if the company covered by the section gives any loan or advance to the persons referred then the amount will be deemed as dividend in the hands of person and that person will have to discharge the tax liability.

apart from this section 295 of companies act 1956 again this section deals with loan to directors and not necessarly the persons covered by the section 2 (22)(e)of IT act and even it is not a restricting section and it prescribes some procedures to be followed by the company whenever co. gives any loan or advance to directors.

no law is voilated by the action as stated.

thanks.
CA Vinod kumar lalwani