deemed dividend

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 April 2011 Here is a case. Kindly help me out.
Company-A is a holding compny having shares of its subsidiary Company- B.
Co. A gives Interest free loan to Co. B. will this attract deemed dividend as per section 2(22)(e).
after a couple of years Co. B repays the same loan to Co. A. will this amount to deemed dividend.
Note: No interest is charged during these years.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

05 April 2011 No both the transaction will not attract deemed dividend as the company receiving loan should hold more than 10% and not the granting person.

Also loan received from 100% subisidiary company is outside the net of deemed dividend.

Kartik

Kartik (Expert)
Follow

05 April 2011 Aditya, can you please identify the provision under which 100% subsidiary is outside the net of deemed dividend.

There is no such exception in section 2(22)(e).

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

06 April 2011 Section 2(22)(e) applies to
(e) any payment by a company, not being a company in which the public are substantially interested,

18) “company in which the public are substantially interested”—a com-pany is said to be a company in which the public65 are substantially interested—
[(b) if it is a company which is not a 73private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—
[(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by—
(c) any company to which this clause applies or any subsidiary company of such company 75[if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.]

Querist : Anonymous

Querist : Anonymous (Querist)

11 December 2011 sir, I dont think tht a loan from 100% subsidiary is out of the net of deemed dividend. pls clarify if possible

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

13 December 2011 First of all in case where company B gives loan to company A then deemed dividend will be applicable and not in vice versa.
So loan must be given to a shareholder holding more than 10% which is not the case here.