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DEEMED DIVIDEND

CA Sakshi (CA Practice) (309 Points)

14 December 2008

Whether a closely held company give advance to its sister concern. If its covered under Deemed dividend u/s 2(22)(e) of IT Act, 1961 then how a company can financially assist its sister concern. Any information regarding this then try to forward it.

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7 Replies

Hitesh Kothari (Article) (144 Points)
Replied 15 December 2008

Dear Sakshi,

Co (Loan giving Co.-LGC) can give advance or Loan to Sister Conceren Co(Loan Receving Co.-LRC) provided the person or member(Registered based on decided case law) holding 10% or more of share capital of LGC is not holding 20% or more in LRC then provision of section 2(22)(e) will not apply to such advance or loan.

Furthermore this provision also do not apply to Preference share holding and where the LGC is engaged in Money lending business.

Thanks & Regards

Hitesh

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rani (article assistent) (53 Points)
Replied 15 December 2008

Originally posted by :Sakshi
"	Whether a closely held company give advance to its sister concern. If its covered under Deemed dividend u/s 2(22)(e) of IT Act, 1961 then how a company can financially assist its sister concern. Any information regarding this then try to forward it.	"

YES,It covered under 2(22)(e).

(Guest)

Dear

Any body having copy of trustee member ship form format. If you are having pls send me.

Regards

Mohanasundaran.T

CA Sakshi (CA Practice) (309 Points)
Replied 16 December 2008

THNX FOR THE REPLY.

But still the matter is same. The Co. is giving loan to its subsidiary or sister concern in which same shareholders exist having more than 10 / 20 % voting rights. So what will be the tax implications on such advances. If you can support your answer with any case laws then it will be very very favourable for me.

CA Sakshi (CA Practice) (309 Points)
Replied 31 December 2008

If anyone can cite a case law with regard to my above case it would be helpful

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Kartik (Service) (40 Points)
Replied 05 April 2011

you can use redeemable preference shares for assisting the sister company. That will not attract deemed dividend.

MD (AAA) (117 Points)
Replied 06 April 2011

There are some glaring lacuna in the provisions for deemed dividend...However, Delhi High Court in case of CIT Vs. Creative Dyeing and Printing P Ltd (2009) 184 Taxman 483 has held that the 'advance' given for commercial purpose of expansion of business cannot be treated as loan or dividend income in the hands of the shareholders of the assessee company as the shareholders also contributes the pool of funds required for expansion.