TaxTMI 
TaxTMI 
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).
Applicability of section 2(22)(e)
08 Sep 2008 
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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. (AI Summary)
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. (AI Summary)