Any Distribution Entailing Release :Tax Management with reference to -Deemed Dividend-

 

2.2.      [ SEC. 2(22)(a) ] :  ANY DISTRIBUTION ENTAILING RELEASE ETC.

(1).Any distribution (2). by a company (3). of accumulated profits, whether capitalized or not  (4). if such contribution entails the release by the company to its shareholders of all or any part of the assets of the company.

Note :

1.         Computation of accumulated profits : Accumulated Profits means commercial profit upto the date of distribution and it comprises of :

    1. Current Profit including Capital Gain

    2. General Reserve , Investment allowance reserve etc.

    3. Tax Free incomes including agricultural income.

But does not include…

    1. Provisions of taxation and dividend

    2. Depreciation Reserve

    3. Revaluation Reserve.

2.         What is Capitalized Accumulated Profits :  Where the Accumulated Profit is capitalized by issue of Bonus Shares.

3.         What do you mean by release of Company’s Assets. Where the distribution is made in cash or in kind to the shareholders – it means there is a release of company’s assets.

4.         When  the Assets are distributed u/s 2(22)(a), the market value of the assets on the date of distribution is taken for computing dividend. No Capital gain arises since it is a Gift.

 
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