will Sec 2(22)(e) get attracted

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karthikeyan.v

Chartered Accountant

523 Points Joined August 2009

Dear learned friends

please note the following points

1) A Ltd is a Closely held company

2)M/s X is a Registered Firm

3) All the Share Holders are partners in the firm

4)M/s V Ltd owes money to the tune of 2 Crores to A.Ltd

5) Since the money is not forthcomming-A Ltd askes V. Ltd to suppy Wind MIll To M/s X for the amt

6)V Ltd supplies the Wind Mill to M/s X

7)A Ltd Debits M/s X and Credits V Ltd.

8)M/s X Debits Wind MIll Asset and Credits A Ltd

9) V Ltd Debits A Ltd and Cedits Sales

Now is the important Part of the Transcaction

10) M/s X Gives Loan to All the Partners to the Extent of 1.20 Crores

11) The Partners using this loan invests as Share Capital in A Ltd.

Now my question is,

1) will Sec 2(22)(e) get attracted in this transcation

2) Any other provision will be attracted

Thanks in anticipation of a reply

karthi

Replies (4)

CA Amit Kumar Khaitan

Research Analyst

360 Points Joined March 2007

In my opinion, Sec 2(22)(e) would not b attracted... because there is no instance of loan given by the company to its shareholders or to M/S X..

V Ltd is simply assigning its Debtors (M/S X) to A Ltd..

M/S X is not a Company... so no deemed dividend should arise in the case

karthikeyan.v

Chartered Accountant

523 Points Joined August 2009

Dear Amitkk

thank you for ur response,Even i feel the same way as u feel, my senior feels that there could be a chance or the Dept telling that there is deemed dividend because of the following ,

Sec 2(22)(e) says any distrubution entailing the release of company's assets- now here X Ltd has a debit balance of V Ltd, and this gets realeased by this act done, and the partners being shareholders receive the amount as loan, X Ltd has accumulated profits of Rs 5.5 crores

I argued the same way u said, that teere is no payment made by the company, still he has doubts

is there any case law similar to this which we can use, this is real situation of one of our client

regards

karthi

karthikeyan.v

Chartered Accountant

523 Points Joined August 2009

dear every one

will any one enlighten me on the above doubt i have put

karthi

Sunshine

Helping All

10575 Points Joined March 2010

since the company A Ltd. is not giving a loan either to the substantial interest holder,i.e the shareholders,or the firm M/s X ....so, there is no question of deemed dividend u/s 2(22)(e)