Dividends u/s. 2(22)

02/05/2021 0 By indiafreenotes

Under Sec 2(22)(b)

  • Distribution of Debenture, Debenture stocks or Deposit Certificate in any form with or without interest by the company to its shareholders shall be deemed as a dividend.
  • Distribution of Bonus shares to the Preference shareholders shall also be deemed as a dividend.

SEC 2(22)(c): Distribution of Assets on Liquidation deemed as Dividend

  • Distribution of the asset made to the shareholders of the company at the time of its liquidation shall be treated as the deemed dividend to the extent of the accumulated profits of the company immediately before it’s liquidation, whether capitalized or not.
  • Fair Market Value of the asset shall be taken for the purpose of computing the deemed dividend u/s 2(22)(c).

SEC 2(22)(d) Distribution on Reduction of Share Capital Deemed as Dividend

  • Any distribution made by the company on the reduction of share capital to the extent to which company possesses accumulated profits, whether capitalized or not.
  • For the purpose of computing the Dividend under this Section, FMV of the assets on the date of distribution shall be taken.


  1. If the loan is granted in the ordinary course of its business and lending of money is a substantial part of the company’s business, the loan or advance to a shareholder or to the specified concern is not deemed to be a dividend.
  2. Where a loan had been treated as a dividend and subsequently the company declares and distributes a dividend to all its shareholders including the borrowing shareholder, and the dividend so paid is set off by the company against the previous borrowing, the adjusted amount will not be again treated as a dividend.

Other exceptions:

Apart from the exceptions cited above, the following also do not constitute “dividend”:

  1. Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956;
  2. Any distribution of shares on demerger by the resulting companies to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).