Declaration of dividend out of accumulated losses

2164 views 8 replies

Hello Friends,

One Private Limited Company is suffering from losses since its incorporation and have no monies in their reserve account but it is anticipating some tax refunds. Can it be possible to declare the dividend out of anticipated refund amounts?

 

Please provide your views regarding this?

Regards,

Rashi Goyal

Replies (8)

MADAM,

 

AS PER MY VIEWS DIVIDEND IS TO BE DECLARED ONLY FROM THE PROFITS OF THE CURRENT YEAR AFTER GIVING EFFECT TO CURRENT YEAR'S DEPRECIATION. DIVIDEND ALSO CAN BE DECLARED FROM THE ACCUMULATED PROFITS OF THE COMPANY.

BUT I DON'T THINK SO DIVIDEND CAN BE DECLARED FROM THE TAX REFUND RECEIVED BY THE CO. 

IN YOUR CASE TAX REFUND CANNOT BE CONSIDERED AS PROFIT

 

REGARDS,

DEVENDRA

Ok, I agree to you, now suppose the refunds have been recieved, and the shareholder holding 99.99% share capital wishes to withdraw the amount of Rs. 50 Lakhs which is lying in the bank account of same company.

Now the question arises, can the amount be withdrawn, if yes than what is the right accounting treatment and its tax implications.

 

Regards,

Rashi Goyal 

How can a shareholder withdraw the amount lying in Company's Bank Account?  He is not authorised to withdraw any money from the company's bank account.

SHAREHOLDER IS NOT AUTHORISED TO WITHDRAW ANY AMOUNT FROM THE BANK ON BEHLAF OF THE COMPANY.



But the shareholder had already withdrawn the amount, can you please let me know what would be consequenses under income tax act and companies act.

Regards,

Rashi Goyal

Whether the shareholder was a director and also had the authority for signing cheques? It would be treated as loan to a shareholder.

 

Section 2(22)(e) - deemed dividend provision would not be attracted in this case as the payment is not made from accumulated profits.

Yes. The money withdrawn by the shareholder will be considered as a Loan given to him.



Regards,

Devendra K

Please refer to the link below. It might help you.


/articles/details.asp?mod_id=6121




Regards,

Devenrda Kulkarni

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