08-08-2009, 03:05 PM
Unfortunately the concept of separate entity is very bitterly overlooked private limited companies. 90% private limited companies are family owned companies. Directors of these companies withdraw cash frequently. I am witnes of drawings of millions of rupees by the directors of private companies. These companies are just like sole proprietors businesses.
Now I come to your question. According to ITO,2001 any withdrawal of cash by way of advance and loan will be considered as dividens and hence WHT shall be deducted on these loans and advances. If the law does not permit grant of loans and advances to directors then how we can assume that huge withdrawals of cash are allowed to directors.
Sub section 19 of section 2 of Income Tax Ordinance defines dividend clause (e)of sub section 19 of section 2 includes the loans and advances issued to directors of a private company as dividend.
Clause (e)of sub section (19) of section (2) lays down
(e) any payment by a private company 3[as defined in the
Companies Ordinance, 1984 (XLVII of 1984)] or trust of any
sum (whether as representing a part of the assets of the
company or trust, or otherwise) by way of advance or loan to a
shareholder or any payment by any such company or trust on
behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company or trust, in either case,
possesses accumulated profits.
Companies Ordinance,1984 also put restriction on grant of loans and advances to directors.
Sub section 1 of section 195 of the ordinance lays down
Loans to directors, etc.- (l) Save as otherwise provided in sub-section
(2), no company, hereafter in this section referred to as "the lending company'', shall,
directly or indirectly, make any loan to, or give any guarantee or provide any security in
connection with a loan made by any other person to, or to any other person by.â
(a) any director of the lending company or of a company which is its holding
company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty
five per cent of the total voting power may be exercised or controlled by
any such director or his relative, or by two or more such directors
together or by their relatives; or
(e) any body corporate, the directors or chief executive whereof are or is
accustomed to act in accordance with the directions or instructions of the
chief executive, or of any director or directors, of the lending company
Provided that a company may, with the approval of the
Commission, make a loan or give any guarantee or provide any security in
connection with a loan made by any other person to a director who is in
Companies Ordinance, 1984
133
the whole-time employment of the company for the purpose of acquisition
or construction of a dwelling house or land therefor or for defraying the
cost of any conveyance for personal use or household effects or for
defraying any expense on his medical treatment or the medical treatment
of any relative as are ordinarily made or provided by the company to its
employees.
Regards,
Awais Aftab
Now I come to your question. According to ITO,2001 any withdrawal of cash by way of advance and loan will be considered as dividens and hence WHT shall be deducted on these loans and advances. If the law does not permit grant of loans and advances to directors then how we can assume that huge withdrawals of cash are allowed to directors.
Sub section 19 of section 2 of Income Tax Ordinance defines dividend clause (e)of sub section 19 of section 2 includes the loans and advances issued to directors of a private company as dividend.
Clause (e)of sub section (19) of section (2) lays down
(e) any payment by a private company 3[as defined in the
Companies Ordinance, 1984 (XLVII of 1984)] or trust of any
sum (whether as representing a part of the assets of the
company or trust, or otherwise) by way of advance or loan to a
shareholder or any payment by any such company or trust on
behalf, or for the individual benefit, of any such shareholder, to
the extent to which the company or trust, in either case,
possesses accumulated profits.
Companies Ordinance,1984 also put restriction on grant of loans and advances to directors.
Sub section 1 of section 195 of the ordinance lays down
Loans to directors, etc.- (l) Save as otherwise provided in sub-section
(2), no company, hereafter in this section referred to as "the lending company'', shall,
directly or indirectly, make any loan to, or give any guarantee or provide any security in
connection with a loan made by any other person to, or to any other person by.â
(a) any director of the lending company or of a company which is its holding
company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty
five per cent of the total voting power may be exercised or controlled by
any such director or his relative, or by two or more such directors
together or by their relatives; or
(e) any body corporate, the directors or chief executive whereof are or is
accustomed to act in accordance with the directions or instructions of the
chief executive, or of any director or directors, of the lending company
Provided that a company may, with the approval of the
Commission, make a loan or give any guarantee or provide any security in
connection with a loan made by any other person to a director who is in
Companies Ordinance, 1984
133
the whole-time employment of the company for the purpose of acquisition
or construction of a dwelling house or land therefor or for defraying the
cost of any conveyance for personal use or household effects or for
defraying any expense on his medical treatment or the medical treatment
of any relative as are ordinarily made or provided by the company to its
employees.
Regards,
Awais Aftab
