Hello, hello friends.
How are you all?
Hi, hello, namaskar.
I am C.
H. Ray Gupta, your friend, your companion, your sympathizer
and your companion in this income tax lecture.
Friends, if you remember,
in the last lecture, we had discussed about people who were
distributing profits.
And when profit was distributed, it was called a dividend.
And the dividend was taxed in the hands of shareholders.
And to save that tax, they used to give different names to
that dividend.
Sometimes they used to show that they sold the assets and
gave the money.
Sometimes they used to show that they reduced the capital
and gave that money.
So we had said that the profits that you made up to the
accumulated profits,
they used to take the form of dividends and used to become
taxable in the hands of shareholders.
I want to take that discussion forward today.
And our last section was section 222E.
We had already covered A, B, C, D.
We had left out the E point.
I would like to discuss that with you today.
Keep watching on the screen and keep listening to me.
Because this is not a class, friends.
This is a half an hour long film.
Keep listening to the story.
Keep enjoying.
Keep increasing your knowledge.
Come.
Friends, understand this case.
There is a company.
The name of the company is…
This is a company, for example.
And the name of this company is Bobby Entertainment Ltd.
Sir, what is the name of this company?
Sir, you already know that I am a bit of a filmy kind of a
person.
So I like only filmy names.
So this is Bobby Entertainment Ltd.
And it has three equal shareholders.
What are their names?
Their names are Mr. Kishan, Mr. Sunny and Mr. Prem.
These three have equal shareholding in Bobby Entertainment.
So they have invested money equally.
Suppose they have invested Rs. 1 crore in Bobby
Entertainment.
1 crore, 1 crore and 1 crore.
What is the capital of Bobby Entertainment Ltd.?
Its capital is Rs. 3 crores.
Now, Bobby has done a lot of work in the whole year.
He has done so much work that his profit in the whole year
is Rs. 6 crores.
This is his profit.
His profit is Rs. 6 crores.
Now these three shareholders, Kishan, Sunny and Prem,
these three have to make their profit.
And these three have been my clients.
And they had taken my classes.
And they said, Mr. Gupta, you are such a sensible person.
You explain such good things to us.
So we know that if we take this as a dividend, then it will
become taxable in our hands.
If I sell my capital asset and distribute it, then it will
also become taxable.
So what can we do?
So Prem is a very smart person.
This is smartness no. 1.
He said, Mr. Gupta, do one thing.
You show my balance sheet.
This company is running.
Profit is standing near it.
You show that this company, Bobby Entertainment, has given
me a loan.
Because the company is giving you a loan.
So in the hands of the company, it has become an asset.
If I give a loan to someone, then it is an asset in my
hands.
He has a liability in his hands.
The loan is in the hands of that person.
Why is it an asset for me?
Because I have the right of recovery for it.
In the future, if he doesn't repay the loan, then I will
enforce the loan.
I have the right to recovery.
So for me, it will become an asset for the company.
All three took the loan.
Prem took it.
Sunny Bhai took it.
And Kishan Bhai took it.
I also took it.
2 crores, 2 crores, 2 crores.
How much was the total?
The total was 6 crores.
And what was our profit?
In a way, they left the profit in their books.
But they distributed the profit in the form of a loan.
All three showed themselves that they have taken a loan
from the company.
And that loan will remain as it is.
It is a private company.
It is not a government company that needs a lot of
investigation.
Auditors from private companies will come.
Auditors also understand everything.
Do you think that these auditors are the idols of truth?
Do they wear a shroud on their heads?
That whatever I do, I will do it with honesty.
Everyone knows what setting is going on.
So what if they do it?
Many such transactions started happening.
This fall is not happening anywhere in A, B, C, D.
And these transactions are bound to start.
So Modi ji saw this.
He said, I consider myself to be very intelligent.
Here we have Mr. Gupta, Mr. Prem, Mr. Kishan, Mr. Sunny.
They are just a few steps ahead of me.
So what if they do it?
So Modi ji said, such things don't work.
For this, I will bring a new section.
Its name is 222E.
And this point is written in it.
If you, any shareholder.
What does shareholder mean?
Whose shareholding is more than 10% in that company.
If you, you mean company.
Company means Bobby Entertainment.
If this company, any such shareholder.
Whose shareholding is more than 10% in that company.
If someone gives him a loan.
Loan to the extent of profits.
Not more than profits.
If it is more than profits, then no problem.
If you give a loan up to profits.
Then it will be assumed that there was a mistake in your
intention.
You wanted to distribute dividends.
You wanted to distribute profits.
But you changed the name of those profits to loan.
And as a loan, you distributed your profits.
And what will happen?
The shareholder who is receiving that loan.
It will be assumed that he did not receive the loan.
He did not receive the loan.
He has received the profits in a way.
And when the shareholder, when the company distributes the
profits.
Then what is its name?
Its name is dividend.
So whether you believe it or not.
What will be believed?
Dividend.
And as soon as it becomes a dividend.
In the hands of the shareholder.
It will become taxable.
Absolutely right.
Is it wrong?
Now this dividend will have to be added to his income.
Tax will have to be paid on this dividend.
It will have to be shown in the return of its income tax.
That's all.
This was my point.
Now let's read the section.
This was my last point.
I hope you have understood this point.
I hope you have understood.
Let me quickly show you this section.
See this.
222E.
We were on 222E.
See this E point.
What does it say?
It says that.
Loan What is he saying?
Basically you are distributing loan to the extent of profits
Your profits basically you are leaving it standing in your
books and basically where did the profits go?
Bank balance must have increased and you are distributing
your loan
So this is advance or loan by a closely held company
What is closely held?
A private company whose shareholders are the electors
The electors control it
Private limited the companies which are named after
Bobby Entertainment
Private Limited
That type of companies
Any payment by a company in which public are not
substantially interested
Public are not substantially interested means that the
common people of India don't have the company's shares That
means the company's shareholding is in the hands of private
people
And that company is a closely held company
So any payment by a company which is closely held of any
sum by way of advance to any shareholder who is a
beneficial owner 10% or more of the equity capital will be
deemed will be deemed
Deemed means whether you believe it or not it will be
believed that it is a dividend shall be deemed to be
dividend to the extent of accumulated profits
If you distribute till 6 crores then till 6 crores it will
be considered as a dividend
But if I would have distributed 10 crores as a loan, then
what would have been believed?
Sir, then 6 crores would have been considered as a dividend
Rest 4 crores would have been shown as a genuine loan
In that case, nothing would have happened
But 6 crores which is distributed to the extent of
accumulated profits will be considered as a dividend
If loan is not covered by the accumulated profits not
deemed to be dividend
This is it, friends
Now let's come to the second point
The second point says
For example
As I told you that Prem was a little smart and when this
section came he read this section and he said, do one thing
Don't show me that there is a loan because if I take it my
company had a shareholding of 1 third and if I take a loan
then I will be trapped
Do one thing
I have another company whose name is
I have another company or another partnership firm which
Prem has opened with his wife and its name is
Ash Prem
Ash and Prem Associates
This is its name
Associates Prem's shareholding in this is 50%
and Ash's shareholding is 50% 50% So Prem
This was Prem's second firm
It was a partnership firm
So because it was the number one he told Bobby
Entertainment Pvt.
Ltd that you the loan of 2 crore rupees don't give it to me
give it to this company
What will happen?
It won't be visible that I have taken it and what will be
accepted?
That this firm has taken it and what will happen later?
That 2 crore rupees will come here and I will withdraw that
money
Do you understand?
There are so many tricks in people
There were so many tricks
Because this was Prem and he was the number one
There was another brother of ours
His name was Kishan
He was also a very intelligent person
He said that you do one thing
You understood that this is case number one
What was the second case?
This was Kishan's case
Kishan said that you do one thing
If you give me the loan, I will be trapped
I will take it as a dividend
You do one thing that you give this loan to my wife, Ms.
Kajal in her name of 2 crore rupees
and it will ultimately go for my benefit
Whose benefit will it go for?
It will go for Kishan's benefit
Director, please show this
The one below
Yes, absolutely right
Who will this Bobby Entertainment give the money to?
To Kajal.
For whom?
For the benefit of her
She is his wife and he has given her 2 crore rupees
Was his wife a director in any company?
Was she a shareholder in any company?
No So anything can be given to her
If I give her anything then it will come in the category of
a genuine loan
And when it will come to her then she will transfer it to
her husband
So Mr.
Modi said that there are so many smart people
I make so many policies
If I get involved in these things then when will I work on
the development of the country?
What will happen to our country?
So Mr.
Modi said whatever it is let's do one thing we have only
this in our hands that we get new provisions
So Mr.
Modi inserted another provision and for that you come to
this paragraph
Mr. Modi said
Please read it
What does it say?
It says
Any advance or loan by a closely held company to specified
concern
Who was this specified concern?
Ash, Prem and Associates
This was Prem's other firm
Specified concern
In which the member
Member means our Prem
Member or partner and in which he has a substantial
interest of at least 20% share of the income of the concern
will be deemed to be dividend If you give money to such a
firm where your shareholder means Prem of our company that
shareholder's firm has more than 20% voting power or
holding and if you give that firm a loan then it will be
assumed that ultimately you have circulated that profit and
the loan that you have given to that firm will be assumed
that you have given to Prem because you
only circulated caps in this transaction
Bobby Entertainment gave a loan to
Aishwarya and Prem Associates
and Prem withdrew that money
So it will be assumed that Bobby Entertainment ultimately
gave the money to Prem
This is the point
Any payment by a company
Closely held company on behalf of, for the benefit of any
shareholder
Any shareholder, who was in this case?
Kishan Who was getting the money for his benefit?
His wife
Mrs. Kajal
Even then, what will be assumed?
Shall be deemed to be dividend In that case also, it will
be assumed to be dividend and in the hands of Kishan it
will be taxable
First case
You directly gave the loan to all three shareholders
So in the hands of all three, it will be taxable
Second case
You gave a loan to a firm where your shareholder has a
holding of more than 20%
Even then, that dividend is taxable in the hands of the
shareholder
Case number three
You gave it to someone else for the benefit of your
shareholder
But ultimately, the benefit will be of your shareholder
So what will be assumed?
In the hands of the shareholder that dividend will be
deemed to be dividend
This is the point
Is the point clear?
If you want to make a reading then do it
This is the point
You can see how smart the people of our country are
If you make a provision
to get out of it the loopholes that are there
The people of our country do such a thing that even the law
thinks
Wow, applause
We could not think of this as much as you did
Friends, this is the point that it is a hard-earned money
and 30-30% will be taken by the government, let's say if I
am earning 10 crores and I am paying tax of 3 crores, then
people think that if some provision is found and taken out
from somewhere, so that it becomes my savings.
This is the mentality of people, this is the mentality of
the government that our country will run with this money,
then why should I leave this man, get money recovered from
him.
So, there is always a conflict between the two, it has been
going on since the beginning and it will continue.
Lawmakers are becoming faster, law breakers are becoming
faster.
These things are actual.
I would like to say that all the characters in this example
are imaginary and have nothing to do with real life.
Let's move to the next point, there are some exceptions to
this.
Because this point was coming that, for example, there are
NBFCs, there are chit funds, there are financial
institutions, there are also private banks.
For example, I am a private bank and I have opened a bank
today.
And the shareholding in that bank is of 25% and the rest
75% shares are with different people.
If I need anything in the future and I run a bank and I
have taken a loan from my own bank.
Now, the law looks at all the transactions from the point
of view of doubt.
So, it will say that your shareholding is more than 10%, it
is 25% and you have taken a loan.
And there were profits in your books.
So, believe it or not, it will be assumed that you have
given yourself a dividend.
So, it was a genuine concern, a genuine problem.
So, in this case, the government said that we also
understand that there can be some genuine problems.
So, for this, we bring point number 1, which says that
loan, its exceptions are that the dividend will never be
accepted.
So, what are its exceptions?
If you grant a loan in the ordinary course of business.
What is your business?
Distributing loans, giving loans and earning money on
interest.
Who does this? Banks do this.
So, if you have taken a loan genuinely.
And you have taken it from such a company that what is its
job in the ordinary course of business?
Distributing loans.
So, this provision will not be applied there.
Let's see.
If the loan is granted in the ordinary course of business
and lending of money is a substantial part of company's
business.
Loan or advance to a shareholder or to the specified
concern is not deemed to be a dividend.
In that case, the dividend will not be accepted.
Is the point clear?
See, this is the point.
I will explain the second point.
This is a very interesting point.
Come, read.
It says, where a loan had been treated as dividend and
subsequently company declares and distributes dividend to
all the shareholders, including the borrower.
And dividend is set off against the previous borrowing.
So, adjusted amount will not be considered as dividend
again.
Sir, what did you say?
Sir, I am telling you.
No fear, no worry.
Brother has come.
He will explain and leave.
This means that, for example, the company had shown a loan
of 6 crores here.
And this loan was taxable in the hands of Prem, Kishan and
Sunny.
Let's assume that the company was taxable.
After that, there were profits here.
Do you remember?
Up to 6 crores.
Let's assume that the company also came to distribute this.
Now, tell me.
And it says that we will work genuinely.
And we are distributing these profits.
So, the dividend that will go in the hands of the
shareholder will be taxable.
This will be taxable.
When it will go.
Tax has been imposed on this.
Now, what to do?
Will tax be imposed twice on the same thing?
This 6 crores was in the books.
I showed it as a loan and distributed it from here.
Now, later, in my dream, my God came and said,
Brother, from now on, stop stealing.
And do your business genuinely.
If you do this, then I bless you, son.
That you will earn thousands of crores.
And if you don't do this, then I will destroy your entire
empire.
Say, Satyanarayan Bhagwan Ki Jai.
Profits are there.
So, from the next day, what did that man say?
That because I do genuine transactions, then I also
distribute my profits genuinely.
Tax has already been imposed on this money.
Now, when he will distribute, should tax be imposed on this
too?
Then, didn't double tax be imposed on the same thing?
This is right.
So, this is why the government said,
Brother, when you had already distributed a dividend as a
loan, and tax had already been imposed on it, and later you
distributed your profits, will you distribute it now, will
you adjust it?
That, Brother, I have already given you 6 crores,
I have to give 6 more.
Basically, this is what you had given.
Adjust it, everything will be done.
Are you understanding?
This is what you have given, but you have given it as a
loan.
It is standing here.
Now, you are also saying,
I am distributing the standing amount.
What is to be distributed?
You have to make an adjustment.
That, Brother, I had to give 6 crores,
I have already given 6.
Zero.
It has been set off, it has become zero.
But, already when tax was imposed on it, then it will not
be considered as a dividend again and again.
Because, you have already considered it as a dividend.
How many times will you impose tax on the same thing?
This is the point, friends.
When you distributed the profits as a loan, tax was imposed
on it, later, the profit that was standing in the books,
you want to distribute that, then tax will not be imposed
on it again and again, right?
This is the point.
After reading this, it will become clear.
Where loan has been treated as dividend, which was a loan,
it was not a profit, it was a loan.
I am talking about the loan.
We have already considered the loan as a dividend, and when
we have considered it as a dividend, then tax was also
imposed on it.
And subsequently, the company declares it and distributes
the dividend.
Earlier, it showed its loan of 6 crores in the books, and
this was left standing.
And later, when it had a dream, it decided to distribute
this also.
Distributes dividend to all the shareholders, including the
borrower.
And the dividend that it is giving, that is set off against
previous borrowing.
So, the adjusted amount that will come, do not consider it
as a dividend again, because you have already paid tax on
it.
This is the thing, friends.
Genuinely, if it is a loan, then it will not be accepted.
If you are already making some adjustment, you have already
paid tax on it, then also, your dividend will not be
accepted.
This was the point, friends.
It was a very complex topic.
This is your point.
See this, friends.
Only a small section is remaining, of this topic.
Then, I have to do some reading.
Let me do some reading of yours.
By the way, all the points of this chapter,
I have already covered.
Let me do a quick revision of yours.
Or, in the next lecture, we will do its revision, and we
will also do its reading, and we will also cover a small
topic.
I would like to end this lecture, friends.
You have worked very hard, friends, on this lecture.
This 222 section, is a very complex section, and there are
many cases on it, which reach the High Court and the
Supreme Court.
And I have explained to you, in a very brief, in a very
basic way, that I have explained to you.
If you still do not understand, friends, So, you do one
thing, rewind this lecture once again and then you will
understand.
Open your notes as well, then you will understand.
Friends, it is only knowledge that will give you your right.
Otherwise, as I have said many times, a wise man can use
his wisdom to become rich.
But a rich man can never buy wisdom from his wealth.
All the people in this world who have become rich, who have
become great, they all come from very basic backgrounds.
They come from backgrounds like yours and ours.
They are not from a rich family.
Friends, the path to success is never a straight path.
It is a crooked path.
First you will stumble here, then you will stumble there.
Only then you will understand that you should not have done
this.
You should have done this.
Only then you will get success.
But once you get success, your path opens up.
The path after that becomes straight.
Thank you very much. Namaskar.