Legal Reference Library

The Central Board of Direct Taxes (CBDT) has clarified that trade advances would not attract the provisions of “deemed dividend” under the provisions of Section 2(22)(e) of the Income Tax Act. As per section 2(22) clause (e) of the Income Tax Act, “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. The B...

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. Assessee-Firm is engaged in the business of rendering Management Consultancy Services. The partners of the Firm are equal share holders in a Private Ltd Company, i.e, M/s TMI Associates Pvt. Ltd. The AO found that the assessee firm had shown a loan of Rs. 3 lakhs from M/s TMI Associates Pvt. Ltd and treated the same as the deemed dividend which is taxable in the hands of the assessee-Firm. Before the Trbunal, the assessee contended that it is not a share holder in the said Company and Section 2(22)(e) has no application to the amounts received from a Company by the non-shareholder. The bench noted the decision in Assistant Commissioner Of Income Tax Vs. Bhaumik Colour (P) Ltd wherein i...

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. Assessing Officer, while completing assessment against the assessee-Company, found that assessee had during the previous year accepted the loans of Rs.10,20,00,000/- from M/s. Mega Resources Ltd, in which the subsidiary company of the assessee holds equity shares. The Officer, considering  the shareholding of both the assessee and its subsidiary company and concluded that the assessee held more than 10% of the voting power in M/s. Mega Resources Ltd,. and therefore, the assessee is liable to pay tax on ‘deemed dividend’ under provision of section 2(22)(e) of the Income Tax Act. The first appellate authority allowed the plea of the assessee on first appeal. Aggrieved by the order of the first appellate authority, the department approached the Tribunal relyin...

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION (A.K. SIKRI) AND (ABHAY MANOHAR SAPRE) JJ. JANUARY 04, 2017 CIVIL APPEAL NO. 12274 OF 2016 (ARISING OUT OF SLP (C) NO. 22059 OF 2015) GOPAL AND SONS (HUF) …..APPELLANT(S) VERSUS CIT KOLKATA-XI …..RESPONDENT(S) J U D G M E N T A.K. SIKRI, J. The appellant/assessee, in the instant appeal, has raised following question of law for determination: “Whether in view of the settled principle that HUF cannot be a registered shareholder in a company and hence could not have been both registered and beneficial shareholder, loan/advances received by HUF could be deemed as 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?” 2) The aforesaid question has arisen, which pertains to Assessment Year 2006-07, under the following circumstances: 3) The assessee herein had filed the return in respect of the said Assessment Ye...