|QUERY:||Mr. X, through holding 11% shares in a private limited company, is a minority shareholder and the entire company is run and managed by another group, with whom he is in dispute. Mr. X also is a partner in a partnership firm with 21% share, where again he is in minority and is only a sleeping partner and the firm is run and managed by another group. Without any knowledge of Mr. X, the company gave loan of Rs. 11 crores to the partnership firm, which was repaid on the next day. The company is not in the business of financing. Will there be any tax implication in the hands of Mr. X? Will there be any difference if there is another Mr. Y who has similar holding patterns in both the concerns?|
|ANSWER:||Click here to read the full answer of the expert|
|EXPERT:||CA. H. N. Motiwalla|
|CATCH WORDS:||deemed dividend, partnership firm|
From the facts, it is clear that section 2(22)(e) of the Income-tax Act, 1961 is clearly applicable, irrespective of the fact whether X is managing the company’s business or not. Therefore, any loan given to a partnership firm wherein X has substantial interest i.e. he is beneficially entitled to 20% or more share of the income of the firm, the provision is applicable.