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Section 2(22)(e)

CA Ankit Adhyaru (Partner - Yusuf Ankit & Co.) (201 Points)

12 March 2012

X ltd. is a closely held company. A holds 10% of its ESC and B holds 15% of its ESC. X ltd. on the same day make advances to A and B of Rs. 15 lacs and Rs. 20 lacs respectively. Accumulated profit (other than capitalized profit) of X ltd. on that day was Rs. 20 lacs. Now my question is how deemed dividend u/s 2(22)(e) shall be treated in the hands of A and B?

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5 Replies

Abhishek Pandey (NA) (24 Points)
Replied 12 March 2012

deemed dividend shall be in the hand of shareholder on the basis of their shareholding out of accumulated profit. i.e. in this case deeemed dividend shall be on propotionate basis.

CA Ankit Adhyaru (Partner - Yusuf Ankit & Co.) (201 Points)
Replied 12 March 2012

Deemed dividend is not taxable based on shareholding of the registered shareholder. I mean, suppose in the given case if advance is made only to A of Rs. 15 lacs then it is wholly treated as deemed dividend and not based on his shareholding. i.e. 10% of 20 lacs.

CA SACHIN VIJ (Chartered Accountant) (112 Points)
Replied 13 March 2012

proportionate basis would be applicable.

GAURAV KUMAR SRIVASTAVA (student) (34 Points)
Replied 13 March 2012

it is taxable in the hands of share holders on the basis share holding in the co. .

Aditya (Company Secretary) (33 Points)
Replied 13 March 2012

It is taxable in the hands of Share holder i.e. A and B on the proportionate basis of the advances made to them not on the basis of the share holding as per section 2(22)(e).