Deemed Dividend

CIT v. Parle Plastics Ltd. (2011) 332 ITR 63 (Bom.) Under section 2(22), dividend does not include, inter alia, any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. The expression used in the exclusion provision of section 2(22) is 'substantial part of the business'. Full Article

Manish Kumar Agarwal, FCA Now a days, in a modern organization , there will exist a complicate business structure of holding & subsidiary companies along with closely held companies. There will be routine flow of funds between these companies. It is very important to have the knowledge of provisions of deemed dividend under section 2(22)(e) [...] Full Article

Dividend - Deemed dividend under section 2(22)(e)-Money advanced to shareholder for specific purpose-Where the company advanced certain sum to a shareholder for a specific purpose then the amount so advanced cannot be treated as deemed dividend under section 2(22)(e) Full Article

The issue before the HC relates to certain provisions in the Indian Tax Laws (ITL) that provide for taxability, as dividend, of certain advances or loans made by a company to another concern when the lender/borrower have a common shareholder with substantial interest (deemed dividend provisions). However, advance or loan is not treated as deemed dividend if it is made by the lending company in the ordinary course of its business and the lending of money is a substantial .. Full Article

We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs.32,00,000/­ is that there was a dividend under Section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer. Full Article

Once it is held that the business transactions do not fall within section 2(22)(e), one need not to go further to section 2(22)(e)(ii) to take away the basic meaning, intent and purport of the main part of section 2(22)(e). Full Article

SUMMARY OF CASE LAW Section 2(22) of the Income-tax Act, 1961 – Deemed dividend – Assessment year 1996-97 – Whether word `advance’, which appears in company of word `loan’ in section 2(22)(e), can only mean such advance which carries with it an obligation of repayment – Held, yes – Whether trade advance, which is in [...] Full Article

Closely-held group companies that frequently borrow money from each other should make a mental note of a recent ruling by the income tax appellate tribunal (ITAT), a quasi-judicial tax authority. The tribunal has said that “deemed dividend cannot be taxed in the hands of non-shareholders. ” In order to avoid paying dividend distribution tax (DDT) [...] Full Article