Yogesh Shah (Managing Corporate Finance) (1051 Points)
05 August 2009Before writing this Post, I was going through CA Final module of ICAI on "Direct Taxes".
While reading Section 2(22)(b) - Issue of Bonus Shares to Preference shareholders - it was written that "Market Value of Bonus Shares is taxable in the hands of Preference Shareholders. It is deemed Dividend."
Now, my question is "if as per Section 115-O, company pays Corporate Dividend Tax on distribution of Dividend, then why MV of Bonus Shares is taxable in hands of Preference Shareholders ?
CA CS Amit Borade
(Chief Accountant)
(2828 Points)
Replied 05 August 2009
Hi Yogesh, Bonus shares issued to Preference share holders is taxable in the hands of hsareholder only at the time of Sale of such shares under Capital gains, it is not taxable at the time of receipt of bonus shares, but company has to pay DDT u/s 115O.
CA Praveen Nair
(Business Analyst)
(99 Points)
Replied 05 August 2009
yes ...Amit is right....
apart from 2(22) (e), dividend is taxable on payment side not at the receipient side
Bonita
(trainee)
(218 Points)
Replied 06 August 2009
As per section 2(22)(b) the distribution of bonus to prefernece shareholder is regarded as the deemed dividend.
now the logic behind it is that as per companies act the issue of bonus is permitted only to Equity share holder fully paid up...now any attempt by the company to capitalise its share by way of bonus to anyother class of share will not be regarded as capitalisation but will be regarded as distribution of the profits and this fact is very well recognised by the IT dept and therefore
the distribution f bonus to prefernce share holder is regarded as deemed dividend and the company will pay the corporate dividend tax....
now since these bonus share are provided free of cost to the holder..so when the holder sells these shares..at market value.....the whole consideration will be taxable in his hands after deducting any selling expenses if so incurred, under the head of the capital gain..
Yogesh Shah
(Managing Corporate Finance)
(1051 Points)
Replied 06 August 2009
Amit, Praveen & Bonita,
Thnx for ur replies.
CAclubindia
