• Any distribution entailing the release of company’s assets as in [2(22)(a)].
• Any distribution of debenture, debenture-stock, deposit certificates and bonus to preference shareholders as contained in [2(22)(b)].
• Distribution on liquidation of company as explained in [2(22)(c)].
• Distribution on reduction of capital as given in [2(22)(d)].
• Any payment by way of loan or advance by a closely-held company to a shareholder holding substantial interest provided the loan should not have been made in the ordinary course of business and money-lending should not be a substantial part of the company’s business as elucidated in (22)(e)].
The points to be kept in mind are:
• The payment or distribution under the aforesaid clauses can be treated as dividend only to the extent of accumulated profits of the company.
• Loans and advances received by assessee out of share premium account cannot be treated as deemed dividend.
• Distribution in kind may also be termed as a deemed dividend.
• When, a company issues bonus shares capitalizing its profits then there is no release of assets and, consequently, bonus shares are not taken as dividend. Reorganization of Capital – No reduction of capital in the aggregate, section 2(22)(d) will not apply.
Additionally the provisions of section 2(22) (e) states that when a loan or advance is given by a closely – held company such loan is given to a registered shareholder. When the shareholder beneficially holds 10 per cent or more of equity shares in the company such loan or advance is treated as dividend in the hands of shareholder.
Where money lending is a substantial part of the business of the company; the above provisions are not applicable and substantial part must exceed 50% of the whole. Only registered shareholder is considered and there is no restriction on amount of deemed dividend.
Where accumulated profits are considered it is minus dividend under section 2(22) (e). Advance for business transaction will not fall within section 2(22) (e) and repayment of loan before the end of previous year will be termed as deemed dividend. Bonafide loan is termed as a deemed dividend as also overdraft taken by shareholder termed as deemed dividend.
Loan given in kind termed is also termed as deemed dividend. Loan obtained out of Agricultural Income in the hands of the company will be deemed dividend in the hands of the assessee. Any loan given by the company to the employee for the indirect benefit of the director termed as deemed dividend. Personal payment of shareholder by a company will also termed as deemed dividend.
Debit balance of the assessee in the company account termed as loan will consequently be termed as deemed dividend. Call money remaining to be paid by the shareholder cannot be termed as deemed dividend. Share application money – cannot be treated as dividend under section 2(22) (e). Advance rent and any advance against sale of property will be deemed as dividends even if the amount is received under a lease agreement.
