I want to know whether deemed dividend provision is applicable in the following situation:-
Mr. A who is director in Private Limited Co. He is also having proprietory firm. His propriety firm has taken advance from the company in which he is director. On this advance he as a proprietor has paid interest to the comapny.
the provisions of deemed dividend are applicable only in case of a shareholder of the company who has a substantial in the company.
I don't think that the deemed dividend wud apply to director.
girdhar
Director has share holding of 33.33% in the capital of company.
Deemed Dividend u/s Sec 2 (22) (e) is applicable to any payment by a company, not being a company in which the public are substantially interested ie Pvt Ltd, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest ie more than 20% holding.
In ur case Director is holding more than 10% shares in the company, which hv advanced loan to firm owened by the Director. hence Deemed Dividend provisions are applicable.
in that case then I think that the provisions of deemed dividend would get attracted to teh extent of accumulated profits of the company.
Gaurav and Girdhar thanks for adivce. Still I have one doubt please clearify it.
whether provision of section 22(e) is applicable though director has paid interest on advance.
Yes it is applicable irrespective of the fact that Director has paid interest.
CAclubindia
