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deemed dividend

manish shah (proporitor) (63 Points)

20 August 2010

MR X IS SHAREHOLDER IN PVT LTD HOLDING MORE THAN 90 SHARES . HE HAS SECURED LOAN WITH BANK FOR ITS DISTRIBUTION BUSINESS . PVT LTD HAS APPLIED AND GET SACNTIONED LOAN FROM ANOTHER BANK WITH ENHANCE LIMITS ON THE SAME SECURITY . SECOND BANK TAKEN OVER THE LOAN BY MAKING REPAYMENT TO OLD BANK . PVT LTD PASSES ENTRY BY DEBITING LOAN AMOUNT TO SHAREHOLDER ACCOUNT . ACCULULATED PROFITS ARE 3 TIMES OF THE LOAN AMOUNT .

CAN IT BE DEEMED DIVIDEND U/S 2 (22) e .

RAISING LOAN FOR THE PURPOSE OF BUSINESS CAN BE JUSTIFIED IN PVT TLD .

SECTION SPEAKS ABOUT PAYMENT MADE TO SHAREHOLDER / FOR THE BENEFIT OF SHAREHOLDER .

IN THE PRESENT CASE THEIR IS NO DIRECT PAYMENT TO SHAREHOLDER . CAN WE PLEAD THAT LOAN REQUIREMENT IS FULFILLED IS TRANSACTION OF ORDINARY COURSE BUINESS TO PVT LTD .

AND HENCE TRANSACTION IS NOT COMING IN AMBIT OF SEC 2 22 e

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9 Replies

venkatraman shrinivas (Tax consultant/Tax Advocate In Practice.) (313 Points)
Replied 20 August 2010

Please state your facts clearly without mincing. This being an important provision, has to be dealt with carefully, in the manner that it is not understood as tax avoidance or shrewd form of evasion.

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Dheeraj (Learner) (1100 Points)
Replied 20 August 2010

DID U MEAN

CO WRONGLY CREDIT THE SHAREHOLDER.---

manish shah (proporitor) (63 Points)
Replied 20 August 2010

shrinivas sir i am very serious about matter and not mincing . I query is relates to ..

pvt ltd company has taken loan ( icici bank ) on the security ( immo Prop ) owned by its shareholder ( 99 % shareholding ) . before this shareholder has taken loan ( SBI ) on the same property . while disbursing the loan to copmany icici bank firslty repaid o/s amount to SBI ( this loan was in the personal name of shareholder ) .

hence in the books of company loan of icic is appearing and agsint which amount receiveble from shareholder is appeared .

now agsint this transaction Dy. Comm of Income tax has considering the sec 2 22 e -to be taxed in shareholder hands .

as on date of loan takeover - company has accumulated profits more than loan amount .

i am planning on following ground - requires your valuable opinion

- this transactiion is entreed in ordinary course of business ( as compnay requires funds for their busiess ) and hence transaction is not covered under provision of deemed dividend .

- payment was not made to shareholder by compnay . actually payment is made bu one bank to other . though payment is on behalf of shrehaolder but made in the interest of company to get additinal amount of loan to be used for business . ( business growth appeared in the said FY by 50 % )

- compnay is in reuirement of funds and hence by doing such take over deal thier is no benefit passed on to shareholder .

Please give you opinion ..

tarun (ca student) (70 Points)
Replied 20 August 2010

if u get the answer plz also tell me

Dheeraj (Learner) (1100 Points)
Replied 20 August 2010

CO & SHAREHOLDERS BOTH R SEPRATE

OKAY

NOW, HOW CAN BOTH TAKE THE LOAN ON SAME PROPERTY

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manish shah (proporitor) (63 Points)
Replied 21 August 2010

company has taken loan from icici , icici bank has takenover loan from sbi old loan . sbi loan was over by taking over by icici .

Dheeraj (Learner) (1100 Points)
Replied 21 August 2010

SIR

LET ME EXPLAIN, WHAT I WANT TO SAY

PROPERTY SHAREHOLDER KE NAAM HOGI TABI SHAREHOLDER NE SBI SE LOAN LIYA HOGA

AGAR PROPERTY SHAREHOLDER KE NAAM H TO CO. NE ICICI BANK SE LOAN KAISE LE LIYA?

OR AGAR PROPERTY TRANSFER KE LIYE OLD LOAN PAY KIYA H TO TRANSFER KE AGREEMENT ME LOAN KISKO PAY KARNA THA CO. KO YA SHAREHOLDER KO

AGAR CO. KO PAY KARNA THA TO YE DEEMED DIVIDEND NHI HOGA

OR AGAR YE SHAREHOLDER KI LIABILITY THI TO YE DEEMED DIVIDEND HOGA UNDER SECTION 2(22)

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Dheeraj (Learner) (1100 Points)
Replied 21 August 2010

IS IT SOLVED

OR DO U HAVE ANY QUERY......

manish shah (proporitor) (63 Points)
Replied 21 August 2010

thanks for your attention - loan taken by compnay by providing security which was in name of shareholder . their is nothing in the deal about sale of propoerty . it is just changing bank for enhancement of loan amount .