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Deemed dividend

CS Jithesh (ACS,) (COMPANY SECRETARY ) (485 Points)

24 November 2009

Dear all,

We have a pvt company (A) and that company wants to give 4 crore to another pvt company (B). But if we give the sum as a loan it will attract sec 2 (22)(e) of Income tax (deemed dividend).

Can you help me how we can transfer the funds to the pvt compant (B) by avoiding the deemed dividend concept

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2 Replies

CA Abhash Mishra (Chartered Accountants) (598 Points)
Replied 24 November 2009

SHOW IS AS SALE OF SHARES

ABHASH

Originally posted by :CS JITHESH
"	Dear all, We have a pvt company (A) and that company wants to give 4 crore to another pvt company (B). But if we give the sum as a loan it will attract sec 2 (22)(e) of Income tax (deemed dividend). Can you help me how we can transfer the funds to the pvt compant (B) by avoiding the deemed dividend concept	"

CA.SKR (CA; CS-Final (One Group); DISA (ICAI); Insolvency Professional) (442 Points)
Replied 24 November 2009

Under Sec- 2 (22) (e), dividend includes 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) by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares 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 profits.

If private company A pays Rs.4.00 crores to another private company B as loan, Sec-2(22)(e) will be attracted only if any of the conditions mentioned above is attracted and that to the extent of accumulated profits of Company A.