Deemed Dividend
This query is : Resolved
05 March 2010
Dear Experts,
In my company director was advanced a loan of Rs. 20Lacs. Director's shareholding in that company is more than 10%. In that year company earned total income of Rs.7 lacs out of which Rs. 6 Lacs is through interest income.
Does it fall within the ambit of 2(22)(e).
In my company director was advanced a loan of Rs. 20Lacs. Director's shareholding in that company is more than 10%. In that year company earned total income of Rs.7 lacs out of which Rs. 6 Lacs is through interest income.
Does it fall within the ambit of 2(22)(e).
05 March 2010
If you extend any loan to director and that company is not in the business of financing then automatically it becomes deemed dividend. If reserves and surplus of that company is more than 20 lakhs as on the date of loan then you are in more danger . You cannot fight also.
05 March 2010
Sir I feel that two more conditions are to be looked into before arriving the answer.
1) whether the company is a closely held company.
2) whether the company had accumulated profits.
1) whether the company is a closely held company.
2) whether the company had accumulated profits.
06 March 2010
DEAR EXPERTS,
THE MAIN SOURCE OF INCOME OF COMPANY IS INTEREST INCOME. THOUGH IT IS NOT A NBFC.
SO WILL 2(22)(e) BE APPLICABLE?
THANK YOU FOR SPARING YOUR INVALUABLE TIME.
THE MAIN SOURCE OF INCOME OF COMPANY IS INTEREST INCOME. THOUGH IT IS NOT A NBFC.
SO WILL 2(22)(e) BE APPLICABLE?
THANK YOU FOR SPARING YOUR INVALUABLE TIME.
06 March 2010
I agree with both the experts.
If the company is a private limited company, then deemed dividend would definitely apply or If it is a public limited company which is closely held, then also the basic section would apply, subject to the other conditions given therein.
If the company giving the loan to Director is a private limited company, then Section 295 of the Companies Act would also be attracted which is an equally dangerous section. Approval of Central Government is required in that case.
If the company is a private limited company, then deemed dividend would definitely apply or If it is a public limited company which is closely held, then also the basic section would apply, subject to the other conditions given therein.
If the company giving the loan to Director is a private limited company, then Section 295 of the Companies Act would also be attracted which is an equally dangerous section. Approval of Central Government is required in that case.
06 March 2010
IF A SHAREHOLDER HOLDING MORE THAN 10% SHARES IS GIVEN LOAN. WILL 2(22)(e) THAN BE ATTRACTED? IT IS THE ACSE OF A PVT LTD CO.
06 March 2010
Yes. Provided the company giving the loan is a company in which public is not substantially interested.
06 March 2010
PLEASE READ TEH ARTICLE ON DEEMED DIVIDENT SHOWN IN CACLUB INDIA. IT HAS SOME OTHER VIEW.
06 March 2010
https://www.caclubindia.com/articles/deemed-dividend-detailed-analysis-4884.asp
06 March 2010
Para 4 of the articles amply clarifies that my view:
As per clause (e) of section 2(22), any payment made by a closely held company by way of loans or advance shall be deemed to be dividend taxable u/s 56 provided the following conditions are satisfied:
Payment is made to a shareholder having substantial interest [i.e., holding >10%] of voting power in the company and is beneficial holder of equity shares;
As per clause (e) of section 2(22), any payment made by a closely held company by way of loans or advance shall be deemed to be dividend taxable u/s 56 provided the following conditions are satisfied:
Payment is made to a shareholder having substantial interest [i.e., holding >10%] of voting power in the company and is beneficial holder of equity shares;
06 March 2010
Thanks Dear Rasesh,
Please see the answer to Q3.
Here it is mentioned that if the income from money lending is 20% or more of the total income any loans or advances made by the said company to its principal shareholder cannot be deemed to be dividend.
As i have mentioned above my compant (PVT LTD) advanced a loan to a shareholder holding more than 10% shares and in the same year its interest income was Rs. 6 Lacs out of total income of Rs.6.5 lacs.
So in above circumstances sec 2(22)(e) is applicable or not?
Please see the answer to Q3.
Here it is mentioned that if the income from money lending is 20% or more of the total income any loans or advances made by the said company to its principal shareholder cannot be deemed to be dividend.
As i have mentioned above my compant (PVT LTD) advanced a loan to a shareholder holding more than 10% shares and in the same year its interest income was Rs. 6 Lacs out of total income of Rs.6.5 lacs.
So in above circumstances sec 2(22)(e) is applicable or not?
06 March 2010
Dear sanjay,
You are mentioning the percentage of interest income vis-a vis the total income of the company. The section 2(22)(e) envisages a situation where in the assessee is ito money lending buiness and has substatial income from that activity. A company having total income of 6.5 lac earning interest of 6 lac may not be necessarily in the buiness of money lending as it may earn interest income by investing idle money in interest bearing securities. Hope this calrifies the issue to you.
You are mentioning the percentage of interest income vis-a vis the total income of the company. The section 2(22)(e) envisages a situation where in the assessee is ito money lending buiness and has substatial income from that activity. A company having total income of 6.5 lac earning interest of 6 lac may not be necessarily in the buiness of money lending as it may earn interest income by investing idle money in interest bearing securities. Hope this calrifies the issue to you.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- ITC temporary reversal and reclaim
- TDS U/S. 194NF
- GST on export of services and Input Credit
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- Inventory of finished goods
- Applicable TDS rate for sale of property in Nov 2024
- Import license renewal
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
- Query for dubts
- Regarding einvoice taken on nil rated sales
- Strategical investment in Public listed company
Trending Online Classes
CAclubindia
