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Deemed Dividend- Query

Tax queries 771 views 7 replies

santhosh

636 Points Posted on 07 July 2009

In a Private Limited Company, Director who has 95% stake uses Company’s cash for his personal expenses and personal asset purchases. Accounting is done as if Loan is given to director. Now Amount is Approx 60-75 Lacs a year. How should we account this in order to avoid tax in the hands of director by way of Deemed Dividend U/s 2(22)(e).The company has not Declared dividend since it date of incorporation.

Replies (7)

Max Payne

employed

2574 Points Posted on 07 July 2009

Does the company have accumulated profits?

santhosh

636 Points Posted on 07 July 2009

Yes Around 1.5 Crores.

Max Payne

employed

2574 Points Posted on 07 July 2009

To the extent there are accumulated profits, it shall be treated as deemed dividend...

I am not aware of anyway to escape that... if the loan is given thru an account then you have no choice but make the director offer the income to tax... But if you can show enough losses at the time of giving the loan, then u can escape...:(

santhosh

636 Points Posted on 07 July 2009

Thanks,Can you name some case laws relating to this issue.

CA Nitin Wadhwani

Chartered Accountant

4469 Points Posted on 07 July 2009

In my opinion, you shouldn't pass entries in the books of account.

For maintaining (Difference between book cash and real cash because of such outflow) maintain it through excel or any other excel software.

Most of the concerns do such "reconcilation" through it.

RAMANJU

here to updating the knowledge

485 Points Posted on 08 July 2009

Personal expenses and Personal assets purchased from the Comapany's cash can be adjusted against the Remuneration he draws from the Company as there is no limit on remuneration for directors in case of Private limited Company. It will be helpfull to some extent hope. However, it is taxable in the hands of Director.