Section 2(22)(e)
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
31 March 2010
Hi,
My Client company has Accumulated loss up to last year. Current year profit amounts to accumulated profit. Last year, Loan has given to Shareholders dr. balance.
2(22)(e) not applicable last year since Acc. loss. However c.year further loan given hence Dr. bal increased
Whether the whole dr. balance comes under 2(22)(e) or C.yr debit only?
Again If Op 1,00,000 dr. then credit of Rs.30000 than again dr of 20000 then also deemed dividend comes to picture Please explain?
My Client company has Accumulated loss up to last year. Current year profit amounts to accumulated profit. Last year, Loan has given to Shareholders dr. balance.
2(22)(e) not applicable last year since Acc. loss. However c.year further loan given hence Dr. bal increased
Whether the whole dr. balance comes under 2(22)(e) or C.yr debit only?
Again If Op 1,00,000 dr. then credit of Rs.30000 than again dr of 20000 then also deemed dividend comes to picture Please explain?
31 March 2010
Payment as Loans/Advances (SEC 2(22)(e)---
Provision must be strictly construed - Section 2(22)(e) creates a fiction bringing in amounts paid otherwise than as dividends, into the net of dividends. Section 2(22)(e) must, therefore, be given a strict interpretation - CIT v. P.V. John [1990] 181 ITR 1(Ker.).
Recipient can be a corporate entity - The provisions of section 2(22)(e) are applicable also to the advance or loan made to a corporate entity - Sadhana Taxtiles Mills (P.) Ltd. v. CIT [1991] 188 ITR 318 (Bom.).
Where assessee was shareholder in a company doing only money-lending business, loan taken by assessee could not be treated as deemed dividend even though company had accumulated profits - CIT v. V.S. Sivesubramaniam [1997] 141 CTR (Mad.) 34.
Emphasis is on ‘possessing’ accumulated profits - Payments made by way of loan or advance to a shareholder or any payments made on behalf or for the benefit of a shareholder are to be treated as dividend in either case to the extent to which the company possesses accumulated profits. The emphasis in this connection must be on-the word ‘possesses’. If the company does not possess the amount, it cannot pay the same. A company can be said to have profits or to be possessed of profits when it actually possess the amount or is in its control - R. Dalmia v. CIT [1982] 133 ITR 169 (Delhi).
Provision must be strictly construed - Section 2(22)(e) creates a fiction bringing in amounts paid otherwise than as dividends, into the net of dividends. Section 2(22)(e) must, therefore, be given a strict interpretation - CIT v. P.V. John [1990] 181 ITR 1(Ker.).
Recipient can be a corporate entity - The provisions of section 2(22)(e) are applicable also to the advance or loan made to a corporate entity - Sadhana Taxtiles Mills (P.) Ltd. v. CIT [1991] 188 ITR 318 (Bom.).
Where assessee was shareholder in a company doing only money-lending business, loan taken by assessee could not be treated as deemed dividend even though company had accumulated profits - CIT v. V.S. Sivesubramaniam [1997] 141 CTR (Mad.) 34.
Emphasis is on ‘possessing’ accumulated profits - Payments made by way of loan or advance to a shareholder or any payments made on behalf or for the benefit of a shareholder are to be treated as dividend in either case to the extent to which the company possesses accumulated profits. The emphasis in this connection must be on-the word ‘possesses’. If the company does not possess the amount, it cannot pay the same. A company can be said to have profits or to be possessed of profits when it actually possess the amount or is in its control - R. Dalmia v. CIT [1982] 133 ITR 169 (Delhi).
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