Section 2(22)(e) of the Income Tax Act

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This query is : Resolved

Sunil Kr. Sanganeria (Querist)

25 April 2011 A Private Limited Company (A) gives loan to another Private Limited Company (B). A holds 24 % shares of B Ltd. No Individual shareholder holds 10% in A and 20% in B.

in my opinion section 2(22)(e) of the act is not applicable. Please advise

Aditya Maheshwari

Aditya Maheshwari (Expert)

25 April 2011 Concor with your views. Not applicable if A giving loan to B

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RANGA SRINIVAS

RANGA SRINIVAS (Expert)

25 April 2011 Dear

Since A is giving loan to B and B is not holding shares as mentioned in Sec 2(22)(e), the said section is not applicable

regards

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) 93[made after the 31st day of May, 1987, by way of advance or loan to a shareholder94, 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 profits95 ;

but “dividend” does not include—

(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;

96[(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 97[and before the 1st day of April, 1965] ;]

(ii) any advance or loan made to a shareholder 98[or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;

99[(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A 1 of the Companies Act, 1956 (1 of 1956);

(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]

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