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Dividend – Definition

Dividend is defined inclusively and include interim dividend.? ‘Dividend’, as generally understood, refers to the return(s) earned by a shareholder for investing in a company by buying its shares.

This inclusive definition of Dividend is required because of Section 2(22)(e) of The Income Tax Act, 1961.

Let’s assume XYZ Private Limited is a closely held company and Mr. X hold more than 10% of voting power in XYZ Private Limited.? Now if this company gives any Loan or advance to Mr. X it will be treated as a Dividend and the company will have to pay dividend-related tax.? This tax will be payable even if the amount is returned to the company.? This provision will not be applicable if XYZ Private Limited is in a money lending business and such loan or advance is adjusted subsequently against the declaration of dividend.

Some more instances wherein the Deemed Dividend concept can come into play –

·?????? Closely held company distributes its assets directly to its shareholders.

·?????? Closely held company gets liquidated and its assets are distributed to its shareholders.

·?????? Closely held company issues bonus shares to its preferred shareholders.

?Hence, the definition of dividend is kept wide and inclusive.