Dividend usually refers to the distribution of profits by a company to its shareholders. However, in view of Section 2(22) of the Income Tax Act, 1961, the dividend shall also include the following:
(a) Distribution of accumulated profits to shareholders entailing release of the company’s assets; (b) Distribution of debentures or deposit certificates to shareholders out of the accumulated profits of the company and issue of bonus shares to preference shareholders out of accumulated profits;
(c) Distribution made to shareholders of the company on its liquidation out of accumulated profits;
(d) Distribution to shareholders out of accumulated profits on the reduction of capital by the company; and
(e) Loan or advance made by a closely held company to its shareholder out of accumulated profits.
According to Section 2(22)(e) of the Income Tax Act, deemed dividends refer to loans or advances made by a company (excluding closely held companies) to the following individuals or entities:
The judicial interpretations given to ‘deemed dividends’ shed some light on the taxability of the same. Here are all such judicial interpretations and case laws reported at taxscan.in.
The Delhi bench of the Income Tax Appellate Authority (ITAT) recently held that the advance given to protect business interest of assessee–company does not attract provisions of deemed dividend under section 2(22)(e) Income Tax Act 1961.
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) in a recent ruling,has held that the profit as per MoU could not be treated as “deemed dividend.”
A division bench of the Orissa High Court has held that the deemed dividend is taxable in the hands of the individual director only and not from the Firm under section 2(22)(e) of the Income Tax Act, 1961.
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), presided over by a Judicial Member Chandra Mohan Garg and and an Accountant Member Pradeep Kumar Khedla upheld the decision of the Commissioner of Income Tax (Appeal) [CIT(A)] that the security premium reserve cannot be regarded as part of accumulated profits while deciding the case of Bhagwati Coal Movers (P) Ltd.
The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that addition made for premium on redemption of preference shares as deemed dividend not sustainable.
Provisions of the Deemed dividend not applicable on the advancement of the loan in the ordinary course of business, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) upheld the order of the CIT(A).
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) presided by Mr. Anil Chaturvedi, Accountant Member, and Ms. Astha Chandra, Judicial Member has held that gratuitous loan by the company to shareholders in return to an advantage cannot be treated as a deemed dividend and deletes addition under Section 2(22)(e) of the Income Tax Act.
Income Tax Appellate Tribunal (ITAT), New Delhi deleted addition for deemed dividend on the ground that the transfer of amount for business purposes was made to avoid forfeiture and held that such a transfer is not loans and advances.
The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the deemed dividend under section 2(22)(e) applies only to persons who are recipients of loan and shareholders of the Payer Company.
The Income Tax Appellate Tribunal ( ITAT ) Chennai Bench deleted the addition of “Deemed Dividend” in the absence of proof to establish payment to a shareholder or person who has a beneficiary interest in the company.
While upholding the deletion of addition made on the deemed dividend by the CIT(A) Delhi bench of Income Tax Appellate Tribunal held that deemed dividend u/s 2(22)(e) of Income Tax Act, 1961 is not applicable on the non-shareholder company.
The Income Tax Appellate Tribunal (ITAT), Chennai held that the amount advanced for business transactions cannot be treated as Deemed Dividend.
The Income Tax Appellate Tribunal (ITAT), New Delhi comprising Shri Saktijit Dey, JM and DR. B.R.R. Kumar, AM has held that the interest-free loans cannot be treated as deemed dividends under Section 2(22)(e) and upholds the order of CIT(A).
Income Tax Appellate Tribunal (ITAT), Rajkot bench consisting of Waseem Ahmed, Accountant Member and T. R. Senthil Kumar, Judicial Member held that loans and advances given in normal course of business and if transaction in question benefits both payer and payee companies, provisions of ‘deemed dividend’ cannot be invoked.
The Mumbai Bench of Income Tax Appellate Tribunal has held that provisions of ‘Deemed Dividend’ would attract all the profits up to the date of payment irrespective of assessment year.
The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961 would not be applicable to loans and advances out of commercial consideration and business expediency.
The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that no TDS deductible as Inter-Corporate deposit is not a deemed dividend.
The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the amount given for the purchase of shareholding cannot be treated as a deemed dividend for the purpose of section 2(22)(e) of the Income Tax Act, 1961.
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted addition on account of deemed dividend as no question of treating amount withdrawn by assessee as partner in nature of loan.
The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that loan on interest received from the sister concern to fulfill the enhanced requirement of working capital for export orders does not attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the inter-corporate deposits, being in the nature of deposits/loans, shall attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) while deleting the addition ruled that the business transaction can not be treated as deemed dividend.
The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the income tax department cannot invoke the provisions relating to “deemed dividend” under Section 2(22)(e) of the Income Tax Act, 1961 if the advances were given to the shareholder for the purpose of business and not for their individual benefits.
The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench deleted the addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
The Madras High Court while upholding the order passed by the Tribunal held that the deemed dividend under Section 2(22) (e) is to be assessed in the hands of the shareholder and not in the hands of the firm.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the transactions carried out through current account for business purposes would not fall within the definition of “Deemed Dividend”. So the Section 2(22)(e) of the Income Tax Act, 1961, would not apply.
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the provisions of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 would not attract in case of reimbursement of business expenditure.
The Income Tax Appellate Tribunal (ITAT) of Delhi bench held that the transaction where received in advance in the normal course of business and which is not taken as a loan cannot be considered as Deemed Dividend.
The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that deemed dividend cannot be applied when the assessee was not a shareholder at the time of the advance
The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that a Firm, which is not a shareholder in a private company, cannot be taxed for deemed dividend under Section 2(22)(e) of Income Tax Act, 1961.
The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the payment of rent as an ordinary business transaction cannot be treated as deemed dividend under the provisions of section 2(22)(e) of the Income Tax Act, 1961.
The Income Tax Appellate Tribunal (ITAT), Hyderabad bench has held that the provisions of deemed dividend cannot be applied when the assessee has a regular business connection with the Company and the transactions would amount to trade advances.
The Mumbai bench of Income Tax Appellate Tribunal (ITAT) decided that since the transaction carried between two group companies were carried as inter-banking accounts transaction then the amount cannot be treated as deemed dividend.
The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the provisions relating to deemed dividend under section 2(22)(e) of the Income Tax Act is applicable only to the extent of accumulated profits of the company available at the beginning of the relevant financial year.
The Income Tax Appellate Tribunal ( ITAT ), Delhi bench held that the director cannot be assessed for the deemed dividend when the Assessing Officer had accepted the Company’s return without any objection.
In Rajesh Pagaria vs. ITO., the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) held that the provisions of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 doesn’t apply to Current Account transactions.
The Kolkata bench of Income Tax Appellate Tribunal ( ITAT ) has ruled that Current Account Transactions would not attract deemed dividend.
A division bench of the Kerala High Court in T.J. Jaikish vs. The Commissioner of Income Tax held that Deemed Dividend is different from ‘dividends’ under section 115(O) of the Income Tax Act, 1961.
A division bench of the ITAT Kolkata comprising N.V.Vasudevan, Judicial Member and Waseem Ahmed, Accountant Member were ruled that the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act would not be applicable to Current Account Transactions.
While hearing the case of Commissioner of Income Tax vs M/s Prasidh Leasing Limited, the Delhi High Court ruled that Provisions of Deemed Dividend applicable when Assessee diverted Advance amount received for procuring import licenses for purchase of shares under Section 2(22)(e) of the Income Tax Act 1961.
In Vinod Kumar Mittal v. Income Tax Officer (ITO), the Jaipur bench of the Income Tax Appellate Tribunal (ITA) recently held that the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act is applicable only to the extent of accumulated profits and not to a capital subsidy or grant.
The Cochin bench of ITAT in the case of M/s.Kerala Transport Co. Vs. The Asst.Commissioner of Income-tax recently ruled that deemed dividend is assessable from Partners, not from the Firm since they are the beneficial shareholders of the lender company.
The New Delhi bench of ITAT in the case of Mr. Tushar Kothari vs. DCIT held that the provisions of deemed dividend would not attract if the assessee was not a shareholder in the payer company.
The Supreme Court of India has referred C.I.T. vs. Ankitech Private Limited case to larger bench for reconsideration. The Apex Court was considering the question whether Section 2(22)(e) of the Act gets attracted inasmuch as a loan has been made to a shareholder, who after the amendment, is a person who is the beneficial owner of shares holding not less than 10% of the voting power in the Company, and whether the loan is made to any concern in which such shareholder is a partner and in which he has a substantial interest, which is defined as being an interest of 20% or more of the share of the profits of the firm.
In the case of The Commissioner of Income Tax and M/s Malayala Manorama Co. Ltd, Kerala High Court recently held that amount received from its subsidiary company cannot be treated as deemed dividend for the purpose of section 2(22)(e) of the Income Tax as the same was part of regular business transaction.
The Hyderabad bench of ITAT recently declared that any loan taken from the closely held company to discharge the payment of salary is ‘commercial transaction’ for the purpose of ‘Deemed Dividend’ under Section 2(22)(e) of the Income Tax Act, 1961.
In the case of DCIT vs. Smt. Sriram Satyavathi, Visakhapatnam bench of Income Tax Appellate Tribunal (ITA) recently held that an amount given as security for purchase of flat cannot be treated as ‘deemed dividend’ for the purpose of Section 2(22)(e) of the Income Tax Act, 1961.
A division bench of the Allahabad High Court recently ruled that the provisions of deemed dividend would not attract in case of mere issuance of a cheque that was subsequently canceled and returned. While quashing a departmental appeal against the order of ITAT, the bench clarified that payment of any sum is necessary to constitute ‘deemed dividend’ for the purpose of Section 2(22)(e) of the Income Tax Act, 1961.
Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that advance given by a company to its Director/ substantial shareholder cannot be considered as deemed dividend for the purpose of section 2(22)(e) of the Income Tax Act.
The Income Tax Appellate Tribunal recently ordered that the provisions of ‘deemed dividend’ under the Income Tax Act would not attract in a case where the assessee pledged his personal properties to the Bank for the purpose of loan and other credit facilities granted to the company.
The Income Tax Appellate Tribunal, Visakhapatnam, recently ruled that advances given to the directors of a Company for purchase of land cannot be treated as ‘deemed dividend’ under section 2(22)(e) of the Income Tax Act, 1961 since the land is transferred to the company within time.
The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of Deemed Dividend do not attract in case of normal business transactions.
The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT), Bengaluru consisting of George George K and Jason P. Boaz has clarified the actions of the revenue in regarding treating of Loans/advances for sale as “deemed dividend” as defined per section 2(22)(e) of the Income Tax Act, 1961.
A two-judge bench of the Supreme Court has upheld the order of the Delhi High Court wherein the Court observed that section 2(22)(e) of the Income Tax Act, 1961 would not attract in a case where the recipient is not a shareholder.
While dismissing a departmental appeal, a division bench of the Gujarat High Court held that the provisions relating to ‘deemed dividend’ would not attract when the borrowing by one person and some other person holding not less than 10% of the voting power of the said company.
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.
In Business Strategy Group v. ACIT, the ITAT, Delhi held that the loan obtained from a Company wherein the partners of the Assessee-Firm are the shareholders cannot be termed as ‘deemed dividend’ of the Firm and therefore, it is not taxable in the hands of the Firm under the provisions of Income Tax Act.
In a significant ruling, the division bench of the Madras High Court held that the registered shareholders for whose benefit the money was advanced are assessable on deemed dividend. In the common order, the division bench clarified that the Company cannot be made liable for income tax for the said income.
The ITAT, Hyderabad bench, in DCIT v. M/s. My Home Constructions Private Ltd, held that the provisions of deemed dividend does not attract in a case where the payment received as advance expenditure for subscription of shares.
In a significant ruling, M/s. Om Siddivinayak Creations Pvt Ltd v. ITO, the division bench of the ITAT Mumbai held that the section 2(22)(e) of the Income Tax Act, which deals with the provisions of deemed dividend would not apply if the assessee is neither share holder nor the beneficial shareholder in the company.
In CIT Jaipur Vs. M/s. Sunny Developers Pvt. Ltd, the division bench of the Rajasthan High Court categorically held that TDS under section 194 of the Income Tax Act is not applicable to payments in the nature of deemed dividend to a concern in which shareholder of assessee company is a member as a partner and the assessee have a substantial interest on such concern.
A Division Bench of the Madras High Court, in the case of CIT Chennai v. Mr. C. Subba Reddy, held that the provisions relating to ‘deemed dividend’ does not attract in a case where the credit is the result of a business transaction and not in the nature of a loan or a deposit.
The two judge bench of Supreme Court of India yesterday held that, payments received by Hindu Undivided Family (HUF) is considered as deemed dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 especially in view of the term “concern” as defined in the Section itself. The two-judge bench of the Apex Court had categorically held that provisions of deemed dividend are attracted if HUF gets payment and shareholder is a shareholder in a company with substantial interest.
The Delhi bench of the Income Tax Appellate Tribunal, in a recent ruling, held that section 2(22)(e) of the Income Tax Act, 1961 is not applicable to pure business transactions. While quashing the order of the assessing authority and the adjudicating authority, the Tribunal observed that the advances made by the assessee company based on an unregistered MOU, cannot be treated as “deemed dividend” for the reason that section 2(22)(e) cannot be invoked in case of normal business transactions.
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench while doubting Delhi Bench ruling in the case of Giesecke & Devrient Vs ACIT, referred the question of Applicability of Double Taxation Avoidance Agreement (DTAA) Rate to Special Bench subject to the approval of President.
While providing relief to Grasim Industries, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench stayed the recovery of demands on account of dividend distribution tax, and interest to the tune of Rs 3786.34 crores.
The Madras High Court has held that the shares purchased pursuant to the order of Company Court would not amount to capital gain and rather to be treated as a dividend.
The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) held that if a company earned income while making strategic investment in its subsidiary company to control the interest in the company then the deemed income cannot be disallowed.
In Principal CIT v. Krishak Bharati Cooperative Ltd, a Division Bench of the Delhi High Court held that where the assessee society would be entitled to tax credit in respect of deemed dividend tax received from an Omani Company on which it was not liable to pay any tax in Oman by virtue of exemption granted as per the Omani Tax laws.
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