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Deemed divident

vivek (öne) (39 Points)

29 January 2014

one deemed divident sec. says if company reduce its capital and give money to share holder then upto accoumated profit it is deemed divident..
then suppose company reduce its 10 rs share to 5 rs. and it refund 5rs per share

if u prprtnat its accumalated profit then it is 4 rs per share...
then 4 rs. is deemed divident and what is 1 rs.
where both r taxable
?

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KCJM and Associates (Chartered Accountants Firm) (864 Points)
Replied 29 January 2014

Dear Vivek,

The provisions of sec 2(22)(d) of The Income Tax Act, 1961 defines dividend as under:

"any distribution to its share holders by a coompany on the reduction of its capital, to the extent to which the company possesses accumlated profits,whether capitalised or not"

Thus, out of refund of Rs.5/share, if the share of the accumlated profit is Rs.4/share, then only sum of Rs.4/share will be considered as dividend under the Act, which shall be held taxable in the hands of the recepient, as per the prescribed slab rates applicable in his case. The residuary sum of Rs.1/share cannot be held as dividend, rather it would be termed as repayment of share capital, which shall not be chargeable to tax.

When, any sum taxed as dividend under sub-clauses (a),(b), (c) and (d) of sec 2(22) of the Act, the company is liable to deduct TDS on such payments, as provided u/s 194 of the Act, failing which the provisions of the said section would have termed to be contravened, making the Company liable for interest u/s 201(1A), penalty u/s 272A and prosecution proceedings u/s 276B of the Act.

Hope this has addressed your query. If you still have any doubt, you may click here to know further.

By Siddharth Galaiya, Tax Solutions Specialist, KCJM
https://www.kcjm.in/

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