Understanding Deemed Dividend with latest case laws : Vol - IV.

We had earlier discussed in details about dividend case laws and analyse with various latest case laws. In continuation of the same given below few more analysis of judgments in respect of deemed dividend.   

Ø  Since the assessee-company was neither a registered nor a beneficial holder of the shares in the company giving loan, the question of including the disputed amount as deemed dividend in terms of s. 2(22)(e) did not arise. Refer, ACIT .v. Britto Amusement P. Ltd, 360 ITR 544.

Ø  Sister concern transactions of commercial nature- Provision of deemed dividend is not applicable. Refer, Dy.CIT .v. Chariot International P. Ltd, 29 ITR 36 .

Ø  Accumulated profits-Depreciation to be considered as per Income–tax Act and not as Companies Act. Refer, CIT .v. Pushparthy Packs (P.) Ltd, 98 DTR 65.

Ø  Assessee was not beneficial owner-Deletion of addition was held to be justified. Refer, CIT .v. Krupeshbhai N. Patel, 99 DTR 209 (Guj.)(HC).

Ø  Assessee received payments from its dealers on behalf of HHFL, in which assessee held 30 % shares, and remitted same to HHFL in 2-3 days.AO held that amount received by assessee from dealers as loan/advance given by HHFL to assessee and deemed same as dividend under section 2(22)(e).Tribunal held that where there was no privity of contract between Assessee and HHFL and there was no positive act of granting loan or advance given by HHFL to assessee.Assessee had not used funds for its own purposes, therefore amount received from dealers for remittance to HHFL could not be deemed as dividend. Refer, Hero Moto Corp Ltd. .v. ACIT, 60 SOT 25.

Ø  Trade advances, which are in nature of money transacted to give effect to commercial transaction, would not fall within ambit of section 2(22)(e). Refer, ACIT .v. Pravin C. Pandya, 60 SOT 133.

Ø  The two common shareholders of the assessee and the other company, held 50% shares in that company but they held only 1.07% share capital of the assessee. Therefore, they did not satisfy the test of holding substantial interest in the assesse. Refer, Source Hub India P. Ltd. v. ACIT, 27 ITR 470.

Ø  Loan advanced to the assessee cannot be treated as dividend in terms of section 2(22)(e), if the assessee is not a shareholder of the lending company. Refer, CIT .v. G.T.Z. Securities Ltd, 359 ITR 345.

Ø  Sum received by assessee as advance for sale of land is not loan or advance, and hence, not taxable as deemed dividend. Refer, CIT .v. Om Prakash Suri, 359 ITR 41.

Ø  Deemed dividend' taken together in hands of all persons cannot exceed accumulated profits of company. Since, in instant case, both the companies in question were having tax or excise liability during assessment year under consideration and as a result there were no accumulated profits in their hands in beginning of year, amount of loan taken by assessee from said companies could not be regarded as 'deemed dividend'. Refer, CIT .v. Vikram M. Kothari, 218 Taxman 59.

Ø  Amounts which had been collected from depositors on behalf of group companies was retained in the firm, in which assessee was partner. Since the amount so collected by the firm on behalf of group companies was supposed to be sent to the company promptly and also firm had showed the same on liability side in balance sheet, it was held to be a loan for the firm. Since assessee had failed to explain for what reason heavy deposits made by investors were retained by assessee in firm for a long period, it was a case of deemed income as assessee was a shareholder in all companies. Refer, CIT .v. Subrata Roy, 219 Taxman 133.

Ø  Inter-corporate deposits (“ICDs”) are not “loans and advances” and are not assessable to tax as “deemed dividend”. Refer, IFB Agro Industries Ltd. .v. JCIT, Kolkata ITAT.

Ø  Share application cannot be considered as loans & advances and hence no deemed dividend. Refer, CIT v. Alpex Exports Pvt. Ltd, 361 ITR 297.

To read the earlier articles on deemed dividend please click the link below.

(i)            http://taxbymanish.blogspot.in/2011/09/understanding-deemed-dividend-with.html

(ii)          http://taxbymanish.blogspot.com/2012/12/understanding-deemed-dividend-with.html

(iii)          http://taxbymanish.blogspot.com/2014/04/few-points-on-deemed-dividend.html

In case you have any further clarification, feel free to contact me at taxbymanish@yahoo.com or else you can view more articles & news related to Indian tax & finance at http://taxbymanish.blogspot.in/.

Thank you.