can anyone help me to understand the concept of deemed dividends
really confused in understanding it
plz help
cheers
Arniv Sharda (CA Final) (3006 Points)
23 September 2011can anyone help me to understand the concept of deemed dividends
really confused in understanding it
plz help
cheers
Rajagopalakrishnan R
(PARTNER)
(1422 Points)
Replied 23 September 2011
Shall try to explain the concept
Deemed dividend provisions are built in to prevent a privately held company divert the earned profits to other companies/entities without declaration of actual dividend ( and therefore payment of Dividend distribution tax).
The primary attack of 2(22)(e) is on the Loans and advances given by a profit earning (earned) company ( in which public are not substantially interested) to specified persons as follows;
1. Members/shareholders of the company holding more than 10% of the shares/profit sharing rights of the company
2. Concerns ( all types) where such member/shareholder holds substantial interest ( meaning 20% or more shares/profit ratio)
3. To such concerns for the individual benefit of such members/shareholders
The Loan/ advances treated as Deemed dividend is limited to the extent of accumulated profits of the company making the advance.
Hope u get a basic idea
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