DCIT Vs J. P. Iscon Ltd. (ITAT Ahmedabad)
The brief facts leading to the case is this that the assessee 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 closely held company in which 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 namely Mr. Pvaveen T. Kotak, Mr. Jayesh T. Kotak, Mr. Jatin M. Gupta & Mr. Amit M. Gupta 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. Hence, the instant appeal filed by the Revenue before us.
It is an undisputed fact that loan has been advanced by the appellant company to six group company which are not shareholder of the appellant company.
On this issue we have further considered the judgment relied upon by the Ld. Counsel appearing for the assessee in the matter of Vidhi Infrastructure Pvt. Ltd. in ITA No. 554/Ahd/2017 & C.O. No. 71/Ahd/2017 passed by the Coordinate Bench in the said Vidhi Infrastructure is one of the companies where the appellant had given inter-corporate deposit. The Coordinate Bench was pleased to hold that such inter-corporate deposit is not deemed dividend.
We have further considered the judgment passed by the Hon’ble SMC Bench in the case of M/s. Precimetal Cast Pvt. Ltd. vs. ITO in ITA No. 3499/Ahd/2015 for A.Y. 2012-13 where it has been held that for the applicability of Section 2(22)(e) it is required that assessee must be a shareholder in the company from whom the loan or advances has been taken and it does not provide that any shareholder of the assessee company who had taken any loan or advances from another company in which such shareholder is also a shareholder having substantial interest.
The judgment passed by the Hon’ble Rajasthan High Court as relied upon by the Ld. AR in the matter of CIT vs. Sunny Developers Pvt. Ltd. in ITA No. 619 to 621 of 2009 has been considered by us wherein it has been held that the taxes not liable to be deducted at source under Section 194 of the Act on deemed divided to a concern in which shareholder of the assessee company is a member as a partner and in which he has substantial interest as per provision of Section 2(22)(e) of the Act invocation of Section 194 is not warranted.
It is also admitted position that ICD/loan has been advanced by the appellant company to the six group companies which are not shareholder of the appellant company. On the identical facts as to whether TDS is to be made where loan has been advanced from one company to other group company in which there are common shareholders has been decided by the Hon’ble Jaipur Bench in the case of ANZ Reality Pvt. Ltd. vs. ITO (2009) 26 SOT 61 (JP) (URO) holding that TDS under Section 194 is not required to be made unless the loan and advances are given to shareholder.
Further that, law does not expect the payer company to deduct TDS when the payment is made to a non-shareholder. The Section 194 requires TDS when payment made to a registered shareholder only. We have further considered the alternative plea made by the appellant before us that the observation of the ITO to this effect that the appellant company hold 10% share in Amit Intertrace Pvt. Ltd., Dhanlaxmi Infrastructure Pvt. Ltd. and Palitana Sugar Mills Pvt. Ltd. whom loans and advances were given is deemed dividend is wrong per se. The same is factually incorrect since the appellant company does not owned 100% share in these companies and even if, the appellant company hold 100% shares in these companies the deemed dividend would arise when these companies give loans to the appellant holding company and not other way around when holding company gives loan to subsidiary company. Thus, we find the observation made hereinabove by the ITO(TDS) is not on the correct proposition of law.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Both the two appeals and the Cross Objections filed by the Revenue and the assessee are directed against the order dated 05.11.2014 & 30.12.2016 passed by the Ld. CIT(A)-XXI & CIT(A)-8, Ahmedabad arising out of the order dated 28.03.2013 & 27.03.2015 passed by the ITO, TDS-2, Ahmedabad & DCIT, TDS Circle, Ahmedabad under Section 201(1) & 201(1A) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for A.Ys. 2007-08 & 2008-09 respectively.
ITA No. 220/Ahd/2015 (A.Y. 2007-08):-
2. Allowing the appeal of the assessee by the Ld. CIT(A) holding that no TDS has to be made under Section 194A on loan of Rs. 19,56,37,008/- advanced by the assessee company to the other group companies has been mainly challenged before us.
3. The brief facts leading to the case is this that the assessee 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 closely held company in which 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 namely Mr. Pvaveen T. Kotak, Mr. Jayesh T. Kotak, Mr. Jatin M. Gupta & Mr. Amit M. Gupta 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. Hence, the instant appeal filed by the Revenue before us.
4. We have heard the respective parties, we have also perused the relevant materials available on record.
5. It appears from the orders passed by the Ld. CIT(A) the following is the shareholding pattern of the appellant company and the six loan receiving companies:
Details of registered shareholder of appellant company during financial year 2006-07:
