Applicability of section 2(22)(e)

[Anup Kumar Grover]

A closely held company pay loan/advance to another group company common shareholder having substantial interest. Whether the payment of such advance/loan attract deemed dividend u/s 2(220(e)?. If advance against property/shares given then, provisions of section 2(22)(e)be applicable or not?. Any tax planning or case law to come out of purview of 2(22)(e).

[DEV KUMAR KOTHARI]

Critically examine if clause apply to the person/ company to whom loan is to be given Loan given in course of money lending business when money lending is sumstantial business, then the deeming provision shall not apply. even trade deposit or advance may be covered. Investmetn in shares and securities of such shareholder company may not attract S. 2(22)(e). One can purchase from security holders (not by directly subscribing) bonds/ debentures of shareholder company. In case of market purchase there will be no payment to shareholder. go on brain storming.

AI Summary

Deemed dividend risk: loans or advances to related shareholders may attract tax unless genuine money lending or market purchased securities avoid payment. Applicability of the deeming provision for deemed dividend arises where a closely held company advances or lends money to a group company or a common shareholder with substantial interest. Loans or advances in the ordinary course of a genuine money lending business, where that is a substantial activity of the payer, are suggested not to attract the provision, while trade deposits or advances may be caught. Market purchases of securities from holders rather than direct subscriptions can avoid payment to the shareholder and may be used for structuring.