26 July 2010
whether share premium is included in accumulated profit u/s 2(22)(e) of i tax act.Please let me know about this one. regards kamal khaitan
26 July 2010
No Share premium is not Included in Accumulated Profits for the purpose of Sec 2(22)(e). When there is a statutory bar on the share premium account being used for distribution of dividend, the deeming provision of Section 2(22)(e) cannot apply.
Section 2(22) of the Act has used the expression 'accumulated profits', 'whether capitalized or not'. This expression tends to show that under Section 2(22) it is only the distribution of the accumulated profits which are deemed to be dividends in the hands of the shareholders. By using the expression 'whether capitalized or not' the legislative intent clearly is that the profits which are deemed to be dividend would be those which were capable of being accumulated and which would also be capable of being capitalized. The amounts should, in other words, be in the nature of profits which the company would have distributed to its shareholders. This would clearly exclude return of part of a capital to the company, as the same cannot be regarded as profit capable of being capitalized, the return being of capital itself.
Citation: Deputy Commissioner Of Income Tax vs Maipo India Ltd. on 7 March, 2008.
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