Income Tax Act, 2025
Section 5: Subs. by Act 25 of 2014, s. 3, for clause (21) (w.e.f. 12013).
5. Subs. by Act 25 of 2014, s. 3, for clause (21) (w.e.f. 12013).
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(e) any payment by a company, not being a company in which the public are substantially
interested, of any sum (whether as representing a part of the assets of the company or otherwise)
1[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a
person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits) holding not less than ten per cent. of the
voting power, or to any concern in which such shareholder is a member or a partner and in which
he has a substantial interest (hereafter in this clause referred to as the said concern)] or any
payment by any such company on behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company in either case possesses accumulated profits;
but “dividend” does not include—
(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any
share issued for full cash consideration, where the holder of the share is not entitled in the event
of liquidation to participate in the surplus assets;
2[(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such
distribution is attributable to the capitalised profits of the company representing bonus shares
allotted to its equity shareholders after the 31st day of March, 1964 3[and before the 1st day of
April, 1965];]
(ii) any advance or loan made to a shareholder 4[or the said concern] by a company in the
ordinary course of its business, where the lending of money is a substantial part of the business of
the company;
(iii) any dividend paid by a company which is set off by the company against the whole or
any part of any sum previously paid by it and treated as a dividend within the meaning of subclause (e), to the extent to which it is so set off;
5[(iv) 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 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged company (whether or not there is a reduction of capital in the
demerged company).]
Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall
not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March,
1948, and before the 1st day of April, 1956.
Explanation 2.—The expression “accumulated profits” in sub-clauses (a), (b), (d) and (e), shall
include all profits of the company up to the date of distribution or payment referred to in those subclauses, and in sub-clause (c) shall include all profits of the company up to the date of
liquidation,6[but shall not, where the liquidation is consequent on the compulsory acquisition of its
undertaking by the Government or a corporation owned or controlled by the Government under any
law for the time being in force, include any profits of the company prior to three successive previous
years immediately preceding the previous year in which such acquisition took place].
7[Explanation 2A.––In the case of an amalgamated company, the accumulated profits, whether
capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether
capitalised or not, of the amalgamating company on the date of amalgamation.]
1. Subs. by Act 11 of 1987, s. 3, for “by way of advance or loan to a shareholder, being a person who has a substantial
interest in the company,” (w.e.f. 11988).
(w.e.f. 12013).
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any payment by a company, not being a company in which the public are substantially
interested, of any sum (whether as representing a part of the assets of the company or otherwise)
1[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a
person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits) holding not less than ten per cent. of the
voting power, or to any concern in which such shareholder is a member or a partner and in which
he has a substantial interest (hereafter in this clause referred to as the said concern)] or any
payment by any such company on behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company in either case possesses accumulated profits;
but “dividend” does not include—
a distribution made in accordance with sub-clause
or sub-clause
in respect of any
share issued for full cash consideration, where the holder of the share is not entitled in the event
of liquidation to participate in the surplus assets;
2[
a distribution made in accordance with sub-clause
or sub-clause
in so far as such
distribution is attributable to the capitalised profits of the company representing bonus shares
allotted to its equity shareholders after the 31st day of March, 1964 3[and before the 1st day of
April, 1965];]
any advance or loan made to a shareholder 4[or the said concern] by a company in the
ordinary course of its business, where the lending of money is a substantial part of the business of
the company;
any dividend paid by a company which is set off by the company against the whole or
any part of any sum previously paid by it and treated as a dividend within the meaning of subclause
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 (1 of 1956);
any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged company (whether or not there is a reduction of capital in the
demerged company).]
Explanation 1.—The expression “accumulated profits”, wherever it occurs in this clause, shall
not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March,
1948, and before the 1st day of April, 1956.
Explanation 2.—The expression “accumulated profits” in sub-clauses
and
shall include all profits of the company up to the date of
liquidation,6[but shall not, where the liquidation is consequent on the compulsory acquisition of its
undertaking by the Government or a corporation owned or controlled by the Government under any
law for the time being in force, include any profits of the company prior to three successive previous
years immediately preceding the previous year in which such acquisition took place].
7[Explanation 2A.––In the case of an amalgamated company, the accumulated profits, whether
capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether
capitalised or not, of the amalgamating company on the date of amalgamation.]
1. Subs. by Act 11 of 1987, s. 3, for “by way of advance or loan to a shareholder, being a person who has a substantial
interest in the company,” (w.e.f. 11988).