TaxTMI 
TaxTMI 
2022 (2) TMI 606
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Dhanlaxmi Infrastructure Pvt. Ltd.: Name of shareholder Number of shares held upto 26.03.2007 Number of shares after upto 27.03.2007 Percentage of holding after 27.03.2007 Mr Mukesh Shah 2,500 0 0 Mr Prakash Rehvar 7,500 0 - JP Infrastructure Pvt. Ltd. 0 2,500 25 Mr Jateen M. Gupta 0 7,500 75 Total 10,000 10,000 100 (ii) Amit intertrade Pvt. Ltd. (Date of incorporation 03.07.2006): Name of shareholder Number of shares held during 03.07.2006 to 31.03.2007 Percentage of holding Mr Amit M. Gupta 5,000 50 Jateen M. Gupta 5,000 50 Total 10,000 100 (iii) Dwani Infrastructure Pvt. Ltd. (Date of incorporation : 13.11.2006): Name of shareholder Number of shares held during 13.11.2006 to 31.03.2007 Percentage of holding Mr Pravin T. Kotak 9,000 90 Mr Amit M. Gupta 1,000 10 Total 10,000 100 (iv) Rich Infrastructure Pvt. Ltd. (Date of incorporation : 13.11.2006): Name of shareholder Number of shares held during 13.11.2006 to 31.03.2007 Percentage of holding Mr Jateen M. Gupta 9,000 90 Mr Amit M. Gupta 1,000 10 Total 10,000 100 (v) Gujarat Mall Management Pvt. Ltd. (Date of incorporatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to six group company which are not shareholder of the appellant company. 9. While allowing the appeal preferred by the assessee the First Appellate Authority observed as follows: "6.3.2 As per the submissions made by the appellant, there are common shareholders holding more than 10% share in all the six companies and the appellant company and the loans and advances given during the period is Rs. 13,09,57,700/-, not Rs. 19,56,37,008/-. In view of the above submission, a remand report: was called for from the ITO (TDS). The ITO (TDS) has forwarded the same to the DCIT (TDS) who has submitted remand report through the Addl. CIT (TDS). The DCIT (TDS) has examined share holdings of all the seven companies and the loan extended by the appellant company to various group companies and has confirmed that out of total loan of Rs. 203077700/- extended to these companies during financial year 2006-07, only Rs. 13,09,57,700/- qualify for deemed dividend u/s 2(22)(e). 6.3.3 Now the issue to be decided Ls whether on the loan of Rs. 13,09,57,700/- qualifying for deemed dividend, TDS is required to be made u/s 194. Section 194, for the purpose of clarity, is reproduced as under: "194. The Pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gister of shareholders under section 150 of the Companies Act, 1956. Company is not obliged to maintain any register wherein details of such concerns may be maintained to which provisions of section 2(22)(e) of the Income-tax Act, 961 or not. Therefore, in this view of the matter, law does not expect the payer company to deduct TDS when payment is made to a non-shareholder. This is the reason the law expressly provides for TDS requirement only when payment is made to a shareholder. Thus, section 194 requires TDS only when payment is made to a shareholder. Payments to shareholder will cover both types of dividends i.e., normal dividend as well as deemed dividend. Otherwise, also, deemed dividend will be taxed in the hands of the shareholder and not in the hands of non-shareholder payee. Therefore, section 194 does not require TDS when payment is made to non-shareholder. Also, under section 206 of the Companies Act, 1956, the dividend can be paid to a registered shareholder only. Therefore, section 194 of the Income-tax Act, 1961 is synchronized with the requirement of the Companies Act, 1956 contained in sections 150 and 206 of the Companies Act, 1956. 7. In view of the above, sin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... agreed interest. Hence there is a clear distinction between ICD vis a vis loans/advances and as the ICD does not fall within the purview of section 2(22)(e). In the present case, there is no case of 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 relevant portion whereof is as follows: "7. Heard both the sides and perused the material on record. The Assessing Officer noticed that assessee company has obtained unsecured loan from Gaurav Securities Pvt. Ltd. wherein one of the main shareholders of the assessee company Shri Umesh Bhatiya was holding substantial shares in Gaurav Securities Pvt. Ltd. Looking to the above facts, the Assessing Officer has made an addit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R 14 Delhi. The relevant part of the decision is reproduced as under:- "50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decision of the Bombay High Court in the case of CIT vs. Impact Containers Private Limited & ors rendered in I TA No. 114 of 2012 and the decision of the Delhi High Court in the case of CIT vs. Ankitech Pvt Lt d reported in 340 ITR 14 (Del) and on interpreting Section 2(22)(e), in para 4 has observed and held as under: "4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ducted at source u/s Section 194 of the Income Tax Act on deemed dividend to a concern in which shareholder of assessee company is a member as a partner and in which he has substantial interest as per provisions of Section 2(22)(e) of the Act. It can't be covered u/s 194." 12. It appears that the Ld. CIT(A) has called for a remand report from the ITO(TDS) on the actual amount of loan and advances given during the period to the six subsidiaries by the appellant company and ultimately it was submitted by the ITO that out of the total loan of Rs. 203077700/- the appellant company extended to the six subsidiaries only Rs. 13,09,57,700/- during the F.Y. 2006-07. 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 advan....