CA Agarwal Sanjay ‘Voice of CA’ , CA Sidharth Jain

Dividend General Meaning

• ’Dividend’, in its ordinary connotation, means the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum of profit distributed.

• Section 2[22] of the Act, fictional provision envisaging 5 different situations.

• Provisions attracted only where there is ‘accumulated profits’Legislative history & Statute

• Provisions in 1922, Act.

• Original section 2[22][e]

• Post amended, present date.

“Any payment by a company, not being a company in which the public are substantially interested, of any sum , by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;”

Deemed Dividends Sec 2[22][e]

• There must be a payment by way of a loan or advance

• Payment by a closely-held company

• Payment either to a registered shareholder or to a concern in which he holds substantial interest or for individual benefit of Shareholder.

• Payment treated to the extent company possess ‘Accumulated Profits’


• The loan should not have been made in the ordinary course of business, and money-lending should not form a substantial part of the company’s business.

• Subsequent dividend to the extent it is so set-off against any loan or advance deemed as dividend is not taxable.

Deemed Dividends Sec 2[22][e]

• Intention

To bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax by such principal shareholders.

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