SECTION 2(22)(E)

[arindam_647]

My client is a Director of a Pvt.Ltd Co and takes a loan approx Rs.41 Lac from that company, in assessment the AO treat this loan as a dividend U/S 2(22)(e) but actually it is an advance and Rs.4Lac out of 41 Lac has been refunded in subsequent years. Pls guide how to save client from dividend Tax.

[satyanveshi]

unless your client had regular business transactions like supplying some material or purchasing material for the said company and the money taken was towards supply of material, there is no way he can escape from deemed dividend provided the company is a private limited company in which public are not substantially interested and the company had sufficient reserves (accumulated profits) before issuing the loan. One interesting feature is that, the reserves or accumulated profits means the surplus arisen by providing the depreciation as per incometax ACt but not the depreciation as per companies Act as per the citation reported in 121 TTJ 713. Please verify whether your client's case falls under any of these categories.

[satishcgarg]

further,
more than 10% shares of the private limited  as on the date of transaction should be held by director, then the Deemed dividend is applicable u/s 2(22)(e).

Thanks
CA Satish Garg

[pawansingla]

Normal business transaction are not to be regarded as deemed dividend u/s 2(22)(e). Delhi High court and Bombay High court have upheld this view.