DEEMED DIVIDEND U/S 2(22)(E)

[HIMANSHU JARIWALA]

DEAR ALL, 

IF A  PVT. LTD. CO. GIVES UNSECURED LOANS TO ANOTHER PVT. LTD. CO. OR P'SHIP FIRM IN WHICH SHARE HOLDER OF THE PVT. CO. IS ALSO SHARE HOLDER OR PARTNER IN OTHER PVT. CO/FIRM TO WHICH LOAN IS GIVEN. IS THIS TRANSACTION ATTRACTS PROVISION OF SEC 2(22)(E). IS THERE ANY EXCEPTION...?

PLS. REPLY

AI Summary

Clarification on Section 2(22)(e): Deemed dividends not applicable if shareholder lacks 10% equity and 20% interest. A private limited company providing unsecured loans to another private limited company or partnership firm, where a shareholder of the lending company is also a shareholder or partner in the recipient entity, raises questions about the applicability of Section 2(22)(e) regarding deemed dividends. The response clarifies that for these provisions to apply, the shareholder must beneficially hold at least 10% equity in the lending company and have a substantial interest, defined as 20% beneficial equity shares or income in the partnership. If these conditions are not satisfied, Section 2(22)(e) does not apply.