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 assessee, M/s J. P. Iscon Ltd. had given inter-corporate deposit to six subsidiaries companies namely Dhanlaxmi Infrastructure Pvt. Ltd., Amit Intertrade Pvt. Ltd., Dhwani Infrastructure Pvt. Ltd., Rich Infrastructure Pvt. Ltd., Gujarat Mall Management Co. Pvt. Ltd. & Palitana Sugars Mills Pvt. Ltd. for business purposes. The lender company was a closely held company in which the public held no substantial interest. According to Revenue the above loans are deemed dividend as per Section 2(22)(e) and the appellant is required to deduct TDS under Section 194 of the Act.
The four directors of the appellant company are the common and beneficial shareholder in the assessee company as well as subsidiary companies. The case of the Revenue is this that the payment by way of loans or advances to the shareholders having, substantial interest in a company to the extent of which the company posses accumulated profits is to be treated as dividend as the resultant effect tax is required to be deducted under Section 194 of the Act for the year under Consideration.
The accumulated profit in terms of reserve and surplus is of Rs. 20,65,96,153/- and the assessee company has advanced loan 19,56,37,008/- on which the assessee is required to deduct tax at 20%. The Assessing Officer after considering the substantial common shareholding of Shri Pravin T Kotak, Shri Jayesh T Kotak, Mr. Jatin M Gupta and Mr. Amit M Gupta treated the amount of Rs. 19,56,37,008/- up to the accumulated profit received by the assessee company namely J. P. Iscon Ltd. as deemed dividend under Section 2(22)(e) of the Act which was, in turn, deleted by the Ld. First Appellate Authority holding that the payee company is not the registered shareholder of the appellant company relying upon various judicial pronouncements made by different forums.
The coram of Accountant Member, Waseem Ahmed and Judicial Member, Madhumita Roy has noted that The order passed under Section 201 and interest charged under Section 201(1A) is the consequential order of making addition holding the inter- corporate deposit to the tune of Rs. 19,56,37,008/- is deemed dividend and TDS is liable to be deducted under Section 194A of the Act.
“Since we have already decided that the inter-corporate deposit of Rs. 19,56,37,008/- is not deemed dividend and, therefore, TDS is not liable to be deducted by the assessee herein. The question of order passing under Section 201/201(1A) is infructuous and no order is required to be passed,” the court ITAT observed.
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