ICD to Holding Company--Deemed Dividend?

Hi Nareshji,

Your question is: Is the foregoing of the interest on ICD advanced by the subsidiary to its holding company tantamount to deemed dividend in terms of Section 2(22)(e)? But what about the Inter-Corporate Deposit itself? Wouldn't the principal amount in itself amount to deemed dividend? No matter which corporate terminology you dress up the transaction in, the bottom line is the company has lent money to a shareholder holding more than 10 per cent of its voting power. I think the ICD would be deemed dividend in the hands of the holding company to the extent the subsidiary possesses accumulated profits. Also, I don't think the fact of loan having been given at a time when ABC Ltd didn't have more than 10 per cent stake would keep Section 2(22)(e) at bay. As soon as a borrower comes to hold more than 10% equity in the company, all moneys advanced to her by the company whether prior or post her shareholding would become deemed dividend. I would recommend squaring up the ICD on 31st March 2008 to avoid any trouble with the taxation authorities. Section 2(22)(e) is a stinging nettle—-once you get caught in it, it's very difficult to break free from it. Thanks,CA Sanjeev Bedi --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Naresh Agarwal" wrote:>> Dear All > > > > Please give your views:> > > > XYZ ltd company has given ICD to ABC ltd company in April'07. Now during> the year XYZ company becomes subsidiary of ABC wef Auf'07. Please advise on> the following :> > > > The Holding company do not want to provide for interest as because of> certain internal reasons for which the subsidiary company agrees. Will the> non provision attract Deemed Dividend for the subsidiary company?> > > > If not will it be considered as other deemed income for subsidiary company.>