Exception to Section 2(22)(a) & (d)

1. Section 2(22) (a) : Distribution of assets Deemed as dividend

Dividend includes any distribution by a company of accumulated profits,whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company.

 

2. Section 2(22) (d): Distribution on Reduction of share capital deemed as dividend

Dividend includes any distribution to its shareholders by a company on reduction of its capital to the extent to which the company possesses accumulated profits, whether capitalised or not.

 

My first question: Whether any assets in clause (a) also includes shares  ??

 

Second question: Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company(whether or not there is a reduction of capital in the demerged company) doesnot be deemed as dividend but how it becomes exception to clause (a) and (d)??

 

Any one Please Explain it.

Thanks in Advance

Replies (5)
Hi Tahseen, 1)If by share u mean Investment then Yes. as per 2(22) (a),distribution of any Tangible or intangible asset (appearing on asset side)e.g fixed asset,stockor any enduring benefit which is framed to avoid DDT 2)Read expressed provision :- but “dividend” does not include— (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] Regards

Thanks Nikhil for your Response

 

But still i did not get answer for my 2nd question.

Hi, I guess ur main Q was to demerger be regarded as 'deemed dividend or not? right. Answer lies in expressed provision of 2(22)as per bare act but “dividend” does not include— (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]
and for resulting co. how come its own shares can be assets to the co.??assets mean asset such as stock,FA,or any intangible asset accruing to the beneficiary.

Dear Freind,

but “dividend” does not include— (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]

The line in red colour in the above provision is your answer. If there is reduction in share capital due to demerger then, (d) would apply otherwise clause (a) would apply.

Let us break the above proviso, for clause (a), then clause (d).

As per above proviso, if any shares are distributed as a result of demerger, then this distribution would not be treated as dividend. {Clause (a) }

If there is reduction of capital then also it would not be treated as dividend {clause (d)}

Regards

Rajat

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