Query in section 2(22)(e)

Hi C. Annbu Palaniappan,

Great question — and an important one when analyzing Section 2(22)(e) of the Income Tax Act, which deals with deemed dividend.

🔍 Understanding the Terms:

🔸 What is a Closely Held Company?

In the context of Section 2(22)(e):

A closely held company is a company in which the public are not substantially interested.

This is the key legal phrase used in the section.

🔸 Is an Unlisted Company always a Closely Held Company?

Not necessarily, but often yes. Here's how to understand it:

Type of Company	Public Substantially Interested?	Closely Held?
Listed Company	Yes (generally)	❌ No
Unlisted Private Company	No	✅ Yes
Unlisted Public Company	Depends on shareholding pattern	Possibly ✅ or ❌

So:

A private limited company (unlisted) is almost always a closely held company.
An unlisted public company may or may not be considered closely held, depending on whether public are substantially interested (i.e., shareholding and control are widely held).

🔹 As per Explanation to Section 2(22)(e):

"...a company in which the public are not substantially interested" means a company other than:

a company listed on a recognized stock exchange, or
a company satisfying the conditions laid out in Section 2(18) (widely held company criteria).

So if an unlisted company does not satisfy Sec 2(18), it's considered closely held.

✅ Final Answer:

Yes, an unlisted company is usually considered a closely held company under Section 2(22)(e), unless it can prove that the public are substantially interested in it (which is rare for unlisted firms).