TaxTMI 
TaxTMI 
2014 (12) TMI 758
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.... dividend under section 2(22)(e) of the Income-tax Act, 1961 on account of the loan of Rs. 5,45,00,000/- paid by M/s. Ernst & Young Merchant Banking Services Pvt. Ltd. (previously known as M/s. Ind Global Corporate Finance Pvt. Ltd.) to the assessee company. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in coming to the conclusion that the substantial part of the business of the lending company is that of money lending." 3. Briefly stated facts are that the assessee filed return of income for the relevant AY 2004-05 on 01.11.2004. Assessment was completed u/s. 143(3) of the Act dated 29.12.2006 making certain additions/disallowances, which were contested in appeal before CIT(A) and Tribunal as well. Subsequently, proceedings u/s. 147 read with section 148 of the Act were initiated vide notice dated 18.11.2008. In response to this notice, assessee filed its return of income and contested the issue that no income on account of deemed dividend was attracted in the instant case since there is a clear distinction between the inter-corporate deposits vis-à-vis loan/advance. According to assessee, all such primary and material facts were ....
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....n business or principal business". The expression used by the legislature in section 2(22)(ii) is "substantial part of the business". In order to fall within the exception of Sec. 2(22)(ii), it is not necessary to show that 'main' or 'principal' business of the lending company is granting of loans. Lending of money should form "substantial part of the business" of the lender. If business of granting of loans, contributes more than 20% of the income or where more than 20% of the investible funds are utilized in granting of loans then it can be said that lending of money is substantial part of the company's business as has been held by "A" Bench of ITAT, Kolkata in the case of ITO Vs. Shree Balajee Glass Manufacturing (P) Ltd. ITA No. 73/Kol/2008 dated 08.08.2008. The assessee earned 45.45% of its total income during the current year from Interest Income. Even in the immediately preceding assessment years it earned 25.84% and 40.71% of its total income from interest. Thus, substantial part of the total revenue of the assessee is from the Interest Income. This interest income has been assessed as "Profits & Gains from Business or Profession" and not under the he....
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....rom Ind Global Corporate Finance Ltd. vide Ch. No. 982251 deposited in Standard Chartered Bank, Mumbai 22,500,000 10.06.2003 Deposit received from Ind Global Corporate Finance Ltd. vide Ch. No. 982252 deposited in Standard Chartered Bank, Mumbai 22,000,000 10.03.2004 Deposit received from Ind Global Corporate Finance Ltd. vide Ch. No. 207252 deposited in Standard Chartered Bank, Mumbai 10,000,000 Total : 54,500,000 However, a sum of Rs. 2,47,523/- was debited to their account towards amount recoverable on account of TDS and balance was Rs. 5,42,52,477/- as on 31.03.2004. The AO treated a sum of Rs. 69,60,262/- as deemed dividend by observing that the above amounts given as inter corporate deposits are loans and advances and EYMBSPL has accumulated profit of Rs. 55,70,808/- as on 31.03.2003, thereby an amount of Rs. 69,60,262/- as accumulated as profit on the date of distribution. On this aspects Ld. counsel for the assessee Shri R. N. Bajoria, Sr. Advocate argued that, first of all, the provisions of section 2(22)(e) does not apply to inter corporate deposits because these are neither loans nor advances. According to him, there is a clear dis....
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....ere the question of allowing it as not taxable. -'He also submitted that1tt*staxable as held in Bajaj Auto Holdings Ltd. Vs. DCIT, 9-5 ITD 356 (Mum). 70. We have heard the parties and considered the rival submissions. It might be true that assesses had offered it to tax initially but he claimed it as not taxable and therefore the matter has to examined on merits and to determine as to whether it is taxable under the Act. We find it is not taxable in the light of the decision in the case of Utkarsh Finance (P) Limited reported in 101 TIJ 210 wherein Ahmedabad Bench of the Tribunal after considering the decision in the case of Andhra Pradesh Chambers of Commerce & Industry Vs. State of AP, 247 ITR 36 (SC), CIT Vs. Sahara India Savings & Inv. Corpn. Ltd., 264 ITR 646 (All) and following the decisions in the case of Gujarat Industrial Investment corpn, Ltd., 89 ITD 520 (Del) held that interest on inter-corporate deposits are not chargeable to interest tax, as the deposits are in the nature of loan or advances. It held as under: "The term "loans and advances" should be understood conjointly and not in isolation. If so read, the advances which are in the nature of loan alone sh....
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.... of term advance as understood in the commercial words and as stated under the title "What is advance" in the following words: "It was held in K.M. Mohammed Abdul Kadir Rowther vs. S. Muthiah Chettiar (1960) 2 Mad. LJ 13 at 15 that 'advance' means literally a payment before hand; in certain cases it may be a loan but it cannot be said that a sum paid by way of advance is necessarily a loan. In Raja of Venkatagiri Vs. Krishnayya Roa Bahadur, AIR 1948 Pc 150 at p. 155, it was observed that ordinarily an advance does not connote any idea of repayment. It is, therefore, clear that the word 'advance' used in s. 296 means an advance in the nature of a loan and not merely an advance as is understood in common parlance in the sense of payment of money beforehand and which is likely to become due at some future time." 72. It has also referred to section 296 of Companies Act regulating loans to directors for book debt which was in the nature of loans or advances from its inception. 73. In the case of Housing & Urban Development Corporation Ltd. Vs. JCIT, 102 ITJ (Del) (SB) (936), the Special Bench after considering various decisions and circulars of CBDT held that de....
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....es, bills, warrants or any other instruments whether or not transferable or negotiable, commercial or other paper or scripts (hereinafter collectively referred to as the "securities"), to act as agents of and or dealers in the securities in the course of merchant banking business, to act as discount house for any of the securities, to act as financial consultants, advisers and counselors in investment and capital markets, to underwrite, sub-underwrite or to provide sand-by or procurement arrangements, to issue guarantees or to give any other commitments for subscribing or agreeing to subscribe or procure or agree to manage portfolio investments, to provide financial and investment assistance for the purpose herein, to act as issue house, registrar to issue, transfer agents, for the securities, to manage and administer computer centres and clearing houses for the securities, to form syndicates or consortia of managers, agents and purchasers, for or of any of the securities, to act as brokers, dealers and agents of or in connection with the securities, bullions and precious metals, to syndicate any financial arrangements whether in domestic market or on international market and wheth....