income from other sources

This query is : Resolved

Report Abuse Follow Query Ask a Query

Rishi

Rishi (Querist)
Follow

02 August 2009 pls tell me section 2(22)(e) in easiest form . i will be very tahnk ful to u.

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
Follow

03 August 2009 2(22)(e)
Any payment (whether in cash or in kind) by a company in which public are not substantially interested to the extent of accumulated profit (excluding capitalized profit) -
i) by way of loan or advance to its equity shareholder, who is registered as well as beneficial owner of the shares, holding not less than 10% of voting power in the company (hereinafter referred as specified shareholder);
Stress
 The provision of sec. 2(22)(e) is applicable on equity shareholder, who is registered as well as beneficial owner of the shares. If the holder is merely beneficial holder but not a registered holder or vice versa, then provision of sec. 2(22)(e) shall not be applicable C12
 Advance means an advance given in the nature of loan (with or without interest), which shall be refunded to the company.
 Loan u/s 2(22)(e) also includes trade deposit with specified shareholder C13
ii) by way of loan or advance to a concern (whether HUF, Firm, AOP, BOI or a Company) of which such specified shareholder is a member or partner at the time of such payment and has substantial interest in such concern; or
#Substantial interest: A person shall be deemed to have substantial interest in a concern, if he is beneficially entitled to not less than 20% of income of such concern (20% of voting power in case of company) at any time during the previous year.
Stress:
 The clause is applicable where –
a) Such shareholder holds at least 10% voting right in the payer company; and
b) Such shareholder is a member or partner of the payee concern and beneficially entitled to not less than 20% of income (20% of voting power in case of a company) of payee concern.
 In case of loan to concern, dividend shall be taxable in the hands of such concern and not in the hands of shareholder.
iii) by way of loan or advance to any person on behalf of or for the benefit of such specified shareholder [Sec. 2(22)(e)]
Stress: Any payment to any person on behalf of specified shareholder for the benefit of such shareholder is treated as deemed dividend.
Notes
a) No exemption on repayment of such loan: Loan to a specified-shareholder is treated as deemed dividend even if such loan or any part of such loan was refunded before the end of previous year C14.
b) Advance to supplier: If the shareholder deals with the company as a supplier, customer, etc. and he always has a debit balance with the company then such debit balance shall be treated as dividend C15.
c) Bonafide Loan: Sec. 2(22)(e) shall be applicable even when assessee has taken a bonafide loan for a short duration. C 31
Exceptions
a. Set-off of loan with forthcoming declaration of dividend: In case the loan granted to member is adjusted with the forthcoming dividend, then such dividend (newly declared) shall not be taxable in the hands of shareholder who adjusted such loan.
b. Advance or loan in the ordinary course of business: Sec. 2(22)(e) is not applicable if an advance or loan is made by a company in the ordinary course of its business, where the lending of money is substantial part of the business of the company.

Online classes for CA CS CMA