Applicability of Sec 2(22)(e)

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....pplicability of Sec 2(22)(e)<br> Query (Issue) Started By: - S SHANMUGASUNDARAM Dated:- 15-11-2010 Last Reply Date:- 29-1-2013 Income Tax<br>Got 2 Replies<br>Income Tax<br>Company ABC Ltd is advanced loan to Company XYZ Ltd. In company ABC Ltd one of the share holder Mr.X having 10.42% share holding and also Mr. X being a share holder of XYZ Ltd having 0.30% Kindly clarify wheather the loan given ....

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....by ABC Ltd to XYZ Ltd will attract Sec 2(22)(e) of Income Tax Act, 1961. Note: ABC Ltd is holding 99.40% shares of XYZ Ltd. Reply By B L Bhojwani: The Reply: As per section 2(22)(e), any payment by a company of any sum (whether as representing part of the assets of the company or otherwise) by way of advance or loan to a shareholder will, to the extent the company possesses accumulated profits,....

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.... will be deemed dividend. This will be, inter alia, subject to the condition that the payment should be to : (a) a beneficial owner of equity shares holding at least 10% of the voting power; OR (b) a concern in which, the above equity shareholder being beneficial owner of atleast 10% of the voting power, is a member or a partner and having a substantial interest. Substantial interest here mea....

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....ns in case of a company beneficial holding of at least 20% of the voting power and in case of a concern other than company, which can be a Hindu undivided family, or a firm or an association of persons or a body of individuals, beneficial interest of 20% in the income of such concern. The loan has been given by ABC Ltd. to XYZ Ltd. Although the shareholding of Mr. X in ABC Ltd. exceeds 10%, he d....

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....oes not have substantial interest in XYZ Ltd. Therefore, the rigour of section 2(22)(e) will not be attracted in his case. Reply By Priyank Banker: The Reply: As per the relevant Section , the person should have either 10% interest in the company,or 20%substantial holding in the concern to which the loan or advance is advanced. Since neither of the criteria is hit, Sec.2(22)(e) stands unattracted....

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