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

[CAGOPALJI AGRAWAL]

In such case, the shareholder in loan giving company must hold at least 10% equity shares beneficially in loan giving company and substantial interest i.e. 20% equity shares beneficially or 20% income incase of partnership. If these conditions are not met out then provisions of section 2(22)(e) would not be attracted.

AI Summary

Deemed dividend under section 2(22)(e): unsecured loans to related entities treated as distribution if shareholding thresholds are met. Deemed dividend under section 2(22)(e) applies when a private company gives unsecured loans to another private company or partnership in which a shareholder of the lending company has an interest. The conditions stated require the shareholder to beneficially hold at least 10% equity in the lending company and the borrower relationship to involve a substantial interest-defined as 20% equity or 20% of income in a partnership; absent these thresholds the provision is indicated not to apply.