Sec 2 (22) (e) Deemed Dividend

hi frndz ,

a closely held company ,having an accumulated profits gives loan to one of its substantial shareholder .and the company shows that this loan has been given out of security premium . so whether this amount of loan upto the accumulated profits  will qualify for sec 2 (22) (e) as deemed dividend ?

ur valueable opinion is invited .

thanks in advance

regards

Dharmesh.

 

Replies (2)

Section 2(22)(e)


"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) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent 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 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;"

So current transaction  attracts Sec 2(22)e

Sec.2(22)(e) creats a deeming fiction that in case any such loan given shall be deemed to be dividend under the tax laws and the provisions shall apply accordingly. Hence their is no such reason be quoted (as quoted by u).

 

The tax dept. is empowered to deem it dividend. So much so that even if the loan is returned by the director back, still it is deemed to be dividend in the hands of director, then what to talk of giving it through any proceeds.............the law is very much settled in it...........!!!!

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