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).

AI Summary

Deemed Dividend Rules: Loans or Advances in Closely Held Companies May Trigger Section 2(22)(e) Under Certain Conditions. A closely held company providing a loan or advance to another group company with a common shareholder who has substantial interest may trigger the deemed dividend provision under Section 2(22)(e) of the Income Tax Act. If the advance is against property or shares, the applicability of this section needs examination. The reply suggests that if the loan is part of a substantial money lending business, the provision may not apply. Trade deposits or advances might be covered, but investments in shares and securities of the shareholder company generally do not attract Section 2(22)(e). Market purchases of bonds or debentures also avoid this provision.