24 December 2008
* Mr. A is holding 25% shares in XYZ Pvt. Ltd.
* The company has Rs. 20 lacs in its Reserve and Surplus on 31.03.2008 which includes Share Premium of Rs. 5 Lacs.
* Mr. A is also partner in M/S ABC & Co. and his share in the firm is 60%.
* The said XYZ company gave a loan of Rs. 18 lacs to ABC & Co. out of which the firm paid Rs. 16 lacs to Mr. A.
(a) Will the provision of section 2(22) (e) of the Income Tax Act be applicable for this transaction?
If yes, what will be the amount of deemed dividend in the hands of Mr. A?
In another situation XYZ Ltd. has repaid of Rs. 18 lacs against loan taken by it from ABC & Co. and ABC & Co. in turn gave loan to MR. A by debiting his capital account.
Whether the department is right in arguing that XYZ Ltd. Co has given Loan to Mr. A via conduit and hence the provisions of sec. 2(22)(e) are applicable and Mr. A is liable to tax for amount received to be considered as deemed dividend ?
Whether TDS provisions are applicable for deemed dividend.?
24 December 2008
a) Provisions of section 2(22)(e) attracts. Deemed dividend is to the extent of accumulated profits ie.Rs.15 lakhs.
Mr.A has to prove that the monetary transactions between the company and the firm is not to circumvent the provisions of section 2(22)(e) otherwise the view of the department will sustain.
TDS Provisions are applicable. Shall forward case laws later.
24 December 2008
The amount of advance can be treated as deemed dividend u/s 2(22)(e) of the Income Tax Act if the company is having accumulated profits available for distribution of dividends to the tune of advances. In that case the amount will be taxable in the hands of director/shareholder u/s 56 of the Income Tax Act. Also, the company will have to deduct Tax at Source u/s 194. Further, dividend distribution tax u/s 115O is not payable in such a case
24 December 2008
ADVANCES GIVEN BY CO.TO FIRM SHALL NOT BE QUALIFIED AS DEEMED DIVIDEND IF YOU CAN GET HOLD OF A SC JUDGEMENT OF JHAMU SUGANDH IN CASE OF DEEMED DIVIDEND PLS SEE THE SAME IT IS VERY EXHASTIVE ON DEEMED DIVIDEND HAVE RECENTLY DEALT WITH SUCH CASE AST REOPENED U/S148 CHANDRAKANT AMBANI BOMBAY 9819408963 / 9821240674
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