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Deemed Dividend ? TDS U/s 194B (DT-CA Final)

Patricia (C.S.- Professional) (sdd) (197 Points)

21 September 2010

Discuss the concept of ‘Deemed Dividend’ u/s 2 (22). Pl define in a layman's language.
What is the quantum of MAT for a ‘domestic company’ and ‘foreign company’ for the AY 2010-11 ?
X and Y are two Shareholders of Pooja Ltd. , a closely held company. X holds 55% share capital on 30.01.2008. X transfers his shares to A. Pooja Ltd. wants to set off brought forward loss of Rs. 4 lakh ( business loss Rs. -1 lakh; Unadjusted Depreciation – Rs. 3 lakh) of the P.Y. 2006-07 against the income of the P.Y. 2007-08 ( i.e. Rs. 9 lakh) . Can it do so ?

regards,

Aditi Garg

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C.A. LINESH PATIL (CA) (910 Points)
Replied 21 September 2010

Hiii..

1) the concept of deemed dividend is that there are certain transaction which have been covered under section 2(22) of income tax, which are treated as dividend paid by company to its share holder,its purely a deeming fiction.

2) In real dividend is a income of share holder and he should pay tax on it but in case of deemed dividend covered under section 2(22)(a) to 2(22)(d) company pay tax on dividend paid, under section 115-O @ 15%.while it is exempt under section 10(34) for share holder.

3) However in case of section 2(22)(e) which is applicable for closely held company n in this case share holder will be required to pay Tax under section 115-O

Further we can also say that under two situation only share holder is liable to pay tax on dividend that is dividend received from foreign company and deemed dividend under section 2(22)(e).