Deemed Dividend Taxation - A Clinical Dissection

Episode Duration:
60 minutes.

Episode Background:

To recapitulate, the provision for taxation of deemed dividend was introduced u/s 2(6A)(e) of the erstwhile Income Tax Act, 1922, whereby the legislative intent behind introduction of such a deeming fiction was to bring under the purview of taxation the accumulated profits which were distributed by closely held companies to its shareholders in the form of loans or advances in order to enable its shareholders to avoid payment of tax on the amount received, which would legitimately constitute dividend in their hands.

Likewise, in the Income Tax Act, 1961, a pari-materia provision has been envisaged u/s. Sec 2(22)(e) which provides that, “any payment by a company, not being a company in which the public are substantially interested, of any sum…. by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares…..holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest…..or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits…” shall be deemed to be “dividend”.

What will the episode cover?

Taxsutra in conjunction with Tax Expert Mr. Nihar Jambusaria (Chartered Accountant) is delighted to present you a special episode on “Deemed Dividend Taxation - A Clinical Dissection." Over the course of this episode, Mr. Jambusaria has navigated through the perplexities regarding the said anti-abuse clause and comprehensively dissected three pertinent questions, viz. (a) What is deemed dividend u/s. 2(22)(e)?, (b) What is meant by "a company in which the public are not substantially interested” as also, (c) What is the meaning of “accumulated profits” for deemed dividend purposes?