ITAT : Rules on deemed dividend taxability for Mauritian Co. ; ICD not 'loan or advance'

Mumbai ITAT rejects deemed dividend taxation u/s. 2(22)(e) in hands of assessee (a Mauritian Co.) with respect to the transaction relating to the Inter Corporate Deposits (ICDs) between its two wholly owned Indian subsidiaries during AYs 2009-10 & 2010-11; Noting the common ‘substantial’ shareholding of assessee in the two concerns (Portescap & Videojet), AO had invoked Sec. 2(22)(e) and had initiated re-assessment proceedings; ITAT rejects invocation of Sec. 2(22)(e) under the Income-tax Act, but rules that 'deemed dividend' constitutes 'dividend' under India-Mauritius DTAA and tax rate @ 5% as per DTAA shall apply; Rejects assessee’s stand that the said sum is not taxable under the India-Mauritius DTAA since ‘deemed dividend’ is not covered within the definition of ‘dividend’ under Article 10(4) of DTAA, observes that deemed dividend is covered under the third facet of ‘dividend’ definition under treaty [i.e. income from corporate rights which is subjected to same taxation treatment as income from shares by the laws of contracting state of which the company making the distribution is a resident]; Rules that "so long as the Indian tax laws consider ‘deemed dividend’ also as ‘dividend’, then the same is also to be understood as ‘dividend’ for the purpose of the Treaty."; On Sec. 2(22)(e) invocation aspect, ITAT accepts assessee’s contention that the amount advanced by Portescap to Videojet was not in the nature of a loan or advance as contemplated in Sec. 2(22)(e) but was an Inter-Corporate Deposit (ICD), cites Bombay HC rulings in Durga Prasad Mandelia and Pennwalt India Ltd. , Ahmedabad ITAT SB ruling in Gujarat Gas Financial Services Ltd. to canvass that a loan and deposit are distinct transactions; Further rejects Revenue’s stand having regard to the Deposit agreement, it was the recipient, i.e. Videojet which was in need of funds and, therefore, the instant transaction has to be understood as a loan transaction and not a deposit of money by Portescap for interest; ITAT refers to the Board Resolution and Financial statements of Portescap which notes the availability of surplus funds, refers to various clauses of the Deposit agreement and concludes the transaction to be in the nature of ICD; On reopening aspect, ITAT holds that since on the date of recording reasons, the ICDs were already subjected to assessment u/s. 2(22)(e) on a substantive as well as on protective basis in the hands of the two subsidiaries, it could not be said that the said income had escaped assessment in hands of assessee, cites Bangalore ITAT ruling in Bullion Investments & Financial Services (P.) Ltd.; Separately, ITAT rejects deemed dividend invocation in relation to amount advanced to GVR (a third entity wherein assessee holds 99.99% shareholding) by Portescap, however, upholds taxability in another transaction involving amount advanced by Portescap to DHR (yet another entity where assessee holds 100% shareholding).:ITAT