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Deemed Dividend

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Deemed Dividend

Postby raj1676 » Mon Mar 23, 2009 6:17 pm

Dear Friends

If in private limited company the shareholding pattern is as follows:-
Mr. A 9 %
Mr. A (HUF) 8 %
Mrs. A 7 %
Mr. B(Father of A) 76 %

advances loan to partnership firm with partners as :-
Mr.A 18 %
Mrs.A 17 %
Brother Mr. A 65 %

Is Deemed dividend applicable in the above case. i.e the ratio of 10% and 20% as mentioned in 2(22)(e) applicable on it individually or collectiviely.

Please reply
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Re: Deemed Dividend

Postby mehta1vishal » Fri Apr 17, 2009 5:50 pm

In my opinion, the limit of 10% or 20% is calculated individually.

But for the purpose of section 2 (22) e , shareholders means registered shareholder. (Case Law CIT v. C.P. Sarathy Mudaliar ).

As in your case, A holds 9% & A (HUF) holds 8% where registered holder will be A. So total holding will be 17% in this case.

However, A holds less than 20% beneficial ownership in the partnership firm, so the condition of 20% beneficial ownership is not fulfilled.

Accordingly, loan given by private limited company to partnership firm will not be treated as deemed dividend.
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Re: Deemed Dividend

Postby sushil jain » Fri Apr 17, 2009 8:19 pm

yes, no deemed dividend.

sushil jain
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Re: Deemed Dividend

Postby solid snake » Thu Jul 16, 2009 10:22 am

As per section 2(22e) only a registered shareholder shall be a shareholder for the purposes of this section. ACIT vs Bhaumik Colour (P) Ltd. (313 ITR 146) clearly specifies that "deemed dividend could only be assessed in the hands of a person who was both a registered and beneficial owner of shares in the lender company. Further, the deemed dividend could be assessed only in the hands of the shareholder and not in the hands of a concern in which he held substantial interest." therefore the beneficial interest of 20% is a vital condition. but the holding of Mr. A in total comes up to (8+9 (individual+HUF) =17%) falling below the criterion of a beneficial owner and hence shall not, consider the payment made by the company to the partnership firm as deemed dividend due to lack of beneficial ownership.

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