In DCIT v. M/s. The Hooghly Mills Co.Ltd, the ITAT Kolkata held that shareholding by Subsidiary Company is irrelevant while considering ‘deemed dividend’ liability of Holding Company under section 2(22)(e) of the Income Tax Act.
Assessing Officer, while completing assessment against the assessee-Company, found that assessee had during the previous year accepted the loans of Rs.10,20,00,000/- from M/s. Mega Resources Ltd, in which the subsidiary company of the assessee holds equity shares. The Officer, considering the shareholding of both the assessee and its subsidiary company and concluded that the assessee held more than 10% of the voting power in M/s. Mega Resources Ltd,. and therefore, the assessee is liable to pay tax on ‘deemed dividend’ under provision of section 2(22)(e) of the Income Tax Act. The first appellate authority allowed the plea of the assessee on first appeal.
Aggrieved by the order of the first appellate authority, the department approached the Tribunal relying on the recent Apex Court ruling in Gopal & Sons (HUF) vs CIT wherein it was held that the karta is a member of the HUF and therefore the shareholding of the karta should be held to be on behalf of the HUF.
Dismissing the appeal, the bench noticed that the above decision is not applicable in the instant case since the shareholding of the assessee and shareholding by its subsidiaries cannot be equated as to a case of shares held by Karta of a HUF in his capacity as Karta of HUF.
It was observed that “the Assessee was a registered and beneficial shareholder of shares of M/S.Mega Resources Ltd., that conferred voting rights of only 1.7%. It is only this share holding that has to be considered for applying the first limb of Section 2(22)( e ) of the Act and the shareholding of the Assessee’s subsidiary M/S.Hooghly Mills Projects Ltd., should not be considered and it is irrelevant. The question in the present case is not even as to whether the Assessee is a beneficial shareholder of the shares held by M/S.Hoogly Mills Projects Ltd.”
Read the full text of the Order below.
