TaxTMI 
TaxTMI 
2005 (4) TMI 10
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....x Act, 1961 (for short the "Act") seeking ruling of the Authority on the following questions:- • Whether on the facts and in the circumstances of the case, the proposed loan to be given by Madura Coats Private Limited (MCPL) to Coats Finance Co. Limited (CFL) can be considered to be "deemed dividend" under section 2(22) (e) of the Income-tax Act 1961 to the extent of "accumulated profits"? • Whether if the said loan is considered as a "deemed dividend", then in the assessment of which entity will such amount be deemed to be dividend? • Whether if the proposed loan gives rise to a charge of tax, what would be the rate at which tax would be payable? 2. The applicant is an Indian company and is a tax resident of India. It is engaged ....
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....astur, learned Senior Counsel appearing for the applicant, would contend that the requirements of section 2(22)(e) are not satisfied so the proposed loan will not be within the mischief of the said provision to be taxable as dividend. Mr. R. Jiya Kumar, Addl. Commissioner of Income-tax, Madurai has argued that as the CPL and TTL are subsidiaries of CHL and as the loan is proposed to be given to CFL, which is a subsidiary of CHL and is having a substantial interest in CFL, the loan will be "deemed dividend" as per section 2(22)(e) of the Act. 5. It may be pointed out at the outset that question no. (1) is the germane question and question nos. (2) & (3) are consequential. We shall, therefore, examine whether the proposed transaction of loan....
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....cutta (infra 3)]. Among others clause(e) embodies payments which must satisfy the following conditions to be deemed "dividend": • the payment is made (after 31 st may, 1987) by a company in which the public are not substantially interested; • the company is having accumulated profits; • the payment is by way of advance or loan: • to a shareholder who is the beneficial owner of shares holding not less than ten per cent of the voting power (but the shares shall not be entitled to a fixed rate of dividend whether with or without a right to participate in profits); or • to any concern in which such shareholder is a member or a partner and in which he has substantial interest (these two conditions are cumulative); or • by the c....
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.... Sanwarmal v. CIT, Assam 2. 8. Now turning to the facts of this case, there are 360 companies in Coats Group and the members of the Group, which have a bearing on the proposed transactions, are depicted by the applicant in the chart of shareholding pattern (Annexure-V), which is reproduced below: WOS. Wholly owned subsidiary A perusal of the above chart of shareholding pattern shows that CHL is the main holding company. Three of its subsidiary companies are Coats Patons Ltd., (CPL) Tootal Threads Ltd. (TTL) and Coats Finance Company Ltd. (CFL), which is itself a holding company of J. & P. Coats Ltd. (JPC) which holds 99.9998% (41,922,111 shares) and TTL holds 0.0002% (100 shares) out of 41922211 shares of the applicant - MCPL. The propos....