Chetan D. (Management Accountant) (89 Points)
26 November 2009Dear All,
If a loan is given by a private limited company to its 100% subsidiary which is also a private limited company and also the directors of both the companies are same, then whether section 2(22)(e) of income tax appicable? The loan is given at market rate of interest.
Thnks in advance
Chetan
Hitesh
(CA)
(459 Points)
Replied 26 November 2009
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Section 2(22)(e) is applicable only to companies in which public are not substantially interested Wherin the payment has been made: |
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i.e. to companies which are commonly known as closely held companies. |
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For applicability it is necessary to satisfy the conditions viz: |
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1) wher the payment is made to any concern - |
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In the above case it clear that Private Company "A" is holding 100% shares of Private Company "B", hence there is no shareholder who may be a shareholder of Private Company "A" but such person is definatly not a shareholder with substantial interest in Private Company "B". |
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Therefore this case would not be covered by the provisions of u/s 2(22)(e). |
kabirsen
(student)
(251 Points)
Replied 26 November 2009
closely held co. is a co. in which public are not public are substatially interested(that is it is not widely held co.)
widelly held co.= 1.co which is not a pvt company and whose equity shares on the last day of relevant py were listed on a stock exchange 2.it is a co. which is not a pvt co. and 50% or more equity shares througout the relevant py are held by 1. govt2. corp establised by state or central act3.co. listed on a stock xchange or 100% subsidiary of such co. 3.co. regd under sec 25 of co. act 1956 4.co. owned by govt / rbi 5. co. in which 40% or more shares are held by the govt. or rbi. or corp. owned by rbi 6. mutual benefit fin. co.(nidhi benefit sociecty) 7.co. in which atleast 50% shares are held throughout relevant by by one r more cooperative society a pvt ltd co. is a co. in which pulic are not substatially interested therefore 2(22)e shud apply
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