Deemed dvidend

Sandeep (Managing Director) (40 Points)

27 August 2011  

Hello, I am new to this forum and this is my first message. Unfortunately the first message I have to post in this forum is a problem. I am in a situation for which I would like to know if there is any way I can escape from the deemed dividend


We have two companies X and Y. In the year 2008-09 we have transferred a sum of 60 lakhs from X to Y as loan and subsequently half of the amount is repaid after few months. By the time the amount was transferred Y is not a share holder in X. At a later stage Y bought 30% stake in X and after an year we merged X with Y. The outstanding amount is being shown as a loan for the past 3 years in the balance sheets of Y. However recently, IT people have asked us to pay a dividend tax as this amount is considered to be a deemed dividend with interest for the last 3 years.

We were unaware of this rule and are caught by surprise now. Is there anyway I can come out of this situation without paying the dividend tax ? Is there any exception? There was no intention to evade tax when we transferred the amount, it was a genuine mistake and now we are in a soup.