Deemed dividend

Tax planning 1197 views 5 replies

Shivish Verma

C A

376 Points Joined August 2009

Hi Friends.

My query is regarding deemed dividend u/s 2(22)(e).

Xyz ltd has given loan to company Abc ltd. Mr. A has 34 % share in Xyz ltd (the lender) and 16.47 % share in Abc Ltd(the borrower).

Further, Mr A's Father is also having 0.02% share in xyz ltd (the lender) and 66 % share in ABC ltd. (the borrower).

Can amount of loan be treated as deemed dividend u/s 2(22)(e) in the hands of Mr. A ? In other words, his father's share (66%) in borrower company i.e. Abc Ltd. be clubbed in the hands of Mr. A for calculating substantial interest?

Replies (5)

CS Rajveer Rai, Gurgaon

646 Points Joined January 2010

As Mr. A has not substantial interest in borrower company it does not come in perview of deemed dividend. clubbing provisions are not considerable here

Arvind Sharma

ACA

1432 Points Joined May 2009

There is no role of Sec 2(22)(e) in case of Limited Co.

Sec 2(22)(e) applies generally in case of Pvt Ltd Co. (any payment by a company, not being a company in which the public are substantially interested) i.e. in case of pay by Ltd. Co., sec 2(22)(e) doesn,t applies.

However, if the case of of XYZ Pvt. Ltd. insted of XYZ Ltd., loan given to ABC Ltd. will be deemed as dividend under that section if :-

- ABC Ltd hold 10% or more in XYZ Ltd. or

- There is a Shareholder (holding 10% or more) of XYZ Pvt. Ltd. and has substential interest in XYZ Ltd. or

Although I haven't see any such case of clubbing of shareholding of father and son and so I can say there will be no deemed dividend in such case as you mentioned.