Urgent....applicability of section 2(22)e (deemed dividend)

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amit jain (Querist)

21 April 2012 Dear All,

Suppose a newly formed pvt ltd company with paid up capital of rs. 2 crores transfers 1.5 crore to its director for purchase of land whether this will fall under deemed dividend. The company accumulated profit of the company is zero. The purpose of granting loan is to purchase land by the director which will be given back to the company for its use.

Please guide.

Amit

CA CKP

CA CKP (Expert)

21 April 2012 Company is newly formed so it does not have any accumulated profit or Reserve.So the company giving loan to director out of its capital.
The question is why company giving loans to its dir out of its capital app. 75 % of its paid up capital?
Why the company not purchasing land directly in its own ?
Whether the AOA authorised the company to do the same?
As such there is no specific provision in the companies act regarding this, company can do the same provided the AOA authorised .

amit jain

amit jain (Querist)

23 April 2012 Dear Sir,

As per the state laws the newly incorporated company cannot acquire any land. So the company is transferring its funds to director to purchase the land. My other query is whether this transfer of funds from company to director will in any way arise any tax liability in the hands of director.

Regards
Amit Jain

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