Can a private limited company can make interest free loans to its directors

[R V SECKAR]

Dear All,

Can anyone please highlight that whether a private limited company can
advance loans to directors which is interest free one?

Section 295 states that a private limited company can advance loan to
its directors.

Can the Board of a private limited company can make interest free
loans to its directors.

Is there any ruling , case laws or Department of Company Affairs
circular on it.

Please throw some light on the issue.

Regards

R.V.Seckar

[Jeewan]

First 295 is not applicable to a Private Company.

 

Only the Income Tax department treat it as a Deemed Dividend u/s 2(22)(e) of the Income Tax Act. and dividend tax is applicable.

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Thanks & Regard

Jeewan

[R V SECKAR]

Dear Mr. Jeevan ,

Section 2 (22) ( Deemed Dividend provision ) is applicable only if the Private Ltd company has made loans to its members .

Please note that DEEMING FICTION CONTEMPLATED BY SECTION 2(22)(E) OF IT ACT CAN BE APPLIED ONLY IN HANDS OF SHAREHOLDER In the light of the intention behind the provisions of section 2(22)(e) and in the absence of indication in said section to extend the legal fiction to a case of loan or advance to a non-shareholder also, loan or advance to a non-shareholder cannot be taxed as “Deemed Dividend” in the hand of a non-shareholder.
ITAT, Mumbai Bench ‘E’ Special Bench
ACIT v Bauman Color Pvt. Ltd. , ITA No. 5030/Mum/04 Dated : 19.11.2008

My question is that whether a private limited company can make a interest free loan to its director if board authorises the same by a resolution.

Regards,

R.V.Seckar

[SUNIL KUMAR B.G.]

Dear Mr.R.V.Seckar.

As you are aware that section 295 is not applicable to private company.

A private company can give interest free loan to it's directors, please check the articles and if the articles allow such loan then yes you can go ahead with that otherwise you required to alter the articles to give effect.

Other members can give contrary views in this matter.

Warm Regards,

Sunil Kumar B.G.
Practicing Company Secretary
B.B.M.,A.C.S.
Mysore
+91-9945653732
http://cssunilbangerabg.blogspot.com/