Section 2(22)

Section 2(22) — the law in short

What the courts have decided on section 2(22), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Colorcon Asia Pvt. Ltd. v. Joint Commissioner of Income Tax High CourtHelps taxpayerUnder appeal
  My Indian company paid DDT at over twenty per cent on dividend to its UK parent. Can I restrict it to the ten per cent treaty rate, and does the Special Bench decision stop me?
  A Division Bench of the Bombay High Court at Goa held that it can. It allowed the appeal, set aside the Board for Advance Rulings' ruling of 27 June 2024, and declared that Colorcon Asia Pvt. Ltd. is entitled to restrict the tax rate on dividends distributed by it to Colorcon Ltd, United Kingdom, at ten per cent under Article 11 of the India-UK tax treaty — on the reasoning that DDT paid by a distributing company is not an income tax on the profits or income of the company but a tax on the dividend, which is the income of the shareholder, charged in the company's hands only for administrative convenience, so that s.90(2) lets the lower treaty rate be applied.
• Reckitt Benckiser Healthcare India Pvt Ltd v DCIT ITATHelps department
  Our demerger was sanctioned by the High Court. The AO now says it is not a demerger under s.2(19AA) and has taxed capital gains and dividend distribution tax. Can he go behind the sanctioned scheme?
  Yes, on the tax conditions. The Tribunal held that the legal obligation of the revenue authorities to examine taxability under ss.2(22) and 2(19AA) is not pre-empted by the High Court's sanction of the scheme, and that the assessee had failed to comply with s.2(19AA)(ii) and (iii). A segment whose liabilities were knocked off against its assets, so that only assets and nil liabilities passed to the resulting company, does not satisfy the requirement that all liabilities relatable to the undertaking be transferred.
• Statutory position — the Finance (No. 2) Act 2024 buy-back regime: s.2(22)(f) deemed dividend from 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
  For a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
• Statutory position — the exclusions in s.2(22)(i) to (v) and Explanations 1, 2 and 2A: what "accumulated profits" means, and the exclusion clause (iv) for buy-backs that was DELETED with effect from 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  How is "accumulated profits" measured for a deemed dividend, what falls outside the definition of dividend altogether, and what happened to the clause that used to keep buy-back payments out of it?
  One of these exclusions is the hinge of the 1 October 2024 buy-back changeover: exclusion clause (iv), which had kept a company's payment on purchase of its own shares outside the definition of "dividend" since 1 April 2000, was OMITTED by Act No. 15 of 2024 with effect from 1 October 2024, at the same moment sub-clause (f) was inserted to bring such a payment IN — so a buy-back before 1 October 2024 is not a dividend and a buy-back on or after that date is. The surviving exclusions are: (i) a distribution under (c) or (d) on a share issued for full cash consideration where the holder is not entitled on liquidation to participate in the surplus assets; (ia) a distribution under (c) or (d) attributable to capitalised profits representing bonus shares allotted to equity shareholders after 31 March 1964 and before 1 April 1965; (ii) an advance or loan to a shareholder or concern by a company in the ordinary course of its business where lending money is a substantial part of that business; (iii) a dividend set off against a sum previously treated as a dividend within sub-clause (e); and (v) a distribution of shares by the resulting company to the shareholders of the demerged company pursuant to a demerger, whether or not there is a reduction of capital in the demerged company. "Accumulated profits" is then fixed by Explanation 1 (certain capital gains excluded), Explanation 2 (all profits up to the date of distribution or payment, or up to liquidation for sub-clause (c), with a carve-out for compulsory acquisition) and Explanation 2A (an amalgamated company's accumulated profits are increased by those of the amalgamating company on the date of amalgamation).
• Statutory position — the first proviso to s.234C(1): no interest for a shortfall caused by capital gains, casual income, first-year business income or dividend income CBDT Circulars & InstructionsCuts both ways
  My client sold a property in February and paid the whole tax on it with the March instalment. The intimation still charges s.234C interest on the June, September and December instalments. Is there a defence in the section itself?
  Yes, and it is in the section itself rather than in any circular. The first proviso to s.234C(1) disapplies the sub-section to any shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate (a) the amount of capital gains, (b) income of the nature referred to in s.2(24)(ix) — casual income such as winnings from lotteries, crossword puzzles and races, (c) income under the head 'Profits and gains of business or profession' in cases where the income accrues or arises under that head for the first time, or (d) the amount of dividend income. The relief is conditional: the assessee must have paid the whole of the tax payable in respect of that income, computed as if it were part of the total income, as part of the remaining instalments of advance tax which are due, or where no such instalments are due, by 31 March of the financial year.
• Statutory position — s.115BBDA: the ten per cent charge on a resident shareholder receiving dividend above ten lakh rupees, and why it sat on top of DDT rather than instead of it CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  My client got a notice charging ten per cent on his dividend income under s.115BBDA even though the companies had already paid DDT. Is that double taxation, and for which years does it apply?
  Section 115BBDA charges a specified assessee resident in India, whose total income includes dividend in aggregate exceeding ten lakh rupees declared, distributed or paid by a domestic company or companies on or before 31 March 2020, to income-tax at ten per cent on the amount of such dividend in aggregate exceeding ten lakh rupees, plus the tax on the rest of his income computed as if the dividend were excluded. Sub-section (2) bars any deduction for expenditure or allowance and any set off of loss in computing that dividend income, and the Explanation excludes a s.2(22)(e) deemed dividend and takes a domestic company, a s.10(23C)(iv)/(v)/(vi)/(via) fund, institution, trust, university or hospital, and a trust or institution registered under s.12A, s.12AA or s.12AB out of 'specified assessee'.
• Statutory position — how DDT was abolished: the end-date written into s.115-O(1), s.115R(2) and s.115BBDA(1), and the withholding that replaced it under s.194 and s.194K CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  Everyone says DDT was abolished in 2020. Which provision actually did it, from what date, and what withholding took its place on dividend and on mutual fund income?
  No section was repealed. The abolition was done by writing an end-date into the charging words themselves: s.115-O(1) now charges only dividend declared, distributed or paid 'on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020'; s.115R(2) charges only income distributed by a specified company or Mutual Fund 'on or before the 31st day of March, 2020'; and s.115BBDA(1) reaches only dividend 'declared, distributed or paid by a domestic company or companies on or before the 31st day of March, 2020'. Dividend then fell to be taxed in the shareholder's hands, with withholding revived under s.194 for dividend paid by a company and s.194K for income in respect of mutual fund units, both at ten per cent.
• CBDT Circular 19/2017 CBDT Circulars & InstructionsHelps taxpayer
  The company advanced money to a sister concern against job work and the officer says it is a deemed dividend. Is there anything binding on him that says a trade advance is not?
  Yes. The Board's own position is that trade advances in the nature of commercial transactions fall outside the word 'advance' in s.2(22)(e), that the courts have settled it, and that its officers are not to file appeals on the ground and are to withdraw or not press those already filed. It binds the department, not the courts — and it is about trade advances in the nature of commercial transactions, not about related-party payments at large.
• Statutory position — s.2(22)(a), (b), (c) and (d): release of assets, debentures and bonus to preference shareholders, distribution on liquidation, and distribution on a reduction of capital CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has treated a company payment as a deemed dividend but the order does not say which limb of section 2(22) he is using, and it plainly is not a loan to a shareholder. What do limbs (a) to (d) actually cover?
  These four limbs have nothing to do with buy-backs and are unaffected by the 1 October 2024 changeover, which operates through sub-clause (f). Each of them turns on "accumulated profits": (a) catches any distribution of accumulated profits, whether capitalised or not, if it entails the release by the company to its shareholders of all or any part of the company's assets; (b) catches any distribution to shareholders of debentures, debenture-stock or deposit certificates in any form, with or without interest, and any distribution to PREFERENCE shareholders of shares by way of bonus, to the extent of accumulated profits whether capitalised or not; (c) catches any distribution on liquidation, to the extent attributable to accumulated profits immediately before liquidation, whether capitalised or not; and (d) catches any distribution on a reduction of capital, to the extent the company possesses accumulated profits which arose after the end of the previous year ending next before 1 April 1933, whether capitalised or not.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.