Skip to main content

Inter-company deposits between sister-subsidiaries not deemed dividend under domestic law

In KIIC Investment Company (Taxpayer),  the Taxpayer was a Mauritius-based investment company, holding substantial interest in Indian companies, I Co 1, I Co 2 and indirectly, in I Co 3. During the tax years under consideration, I Co 1 had placed Inter Corporate Deposits (ICDs)  with I Co 2 and advanced amounts to I Co 3.  The Indian Tax Authority treated both the ICDs and advances  as deemed dividend under the ITL, taxable in the hands of the Taxpayer, being common shareholder in both the parties to the ICD/ advance.

The Mumbai Income Tax Appellate Tribunal (Tribunal) observed that deemed dividend provision of the ITL should be strictly interpreted since it taxes dividend on an artificial basis.  Based on the board resolution/ financial statements of I Co1 and terms of ICD agreement between I Co 1 and I Co2, the Tribunal held that the amount advanced by I Co 1 to I Co 2, is in the nature of a deposit and not a loan. Hence, such amounts cannot be taxed in the hands of the Taxpayer as deemed dividends under the ITL.  However, the Tribunal did not accept the alternate contention of the Taxpayer to the effect that ICD is not taxable as “dividend” under the Treaty. The Tribunal observed that where an amount is regarded as “deemed dividend” under the ITL, the same would also qualify as dividend under the provisions of the Treaty. Basis this, the amount paid by I Co1 to I Co 2 would qualify as dividend under the Treaty, subject to taxation at a lower rate of 5%, instead of the rate of 42.23% as computed by the Tax Authority. 

Article referred: https://www.ey.com/Publication/vwLUAssets/MumbaiTrideemed/%24FILE/MumbaiTrideemed.pdf

Comments

Post a Comment

Most viewed this month

Partition proceedings are vitiated even if single co-sharer is not made party or is not served in accordance with law

Cause Title :  Bhagwant Singh vs  Financial Commissioner (Appeals) Punjab, Chandigarh,  CWP-2132-2018 (O&M), High Court Of Punjab & Haryana At Chandigarh Date of Judgment/Order : 31.08.2022 Corum : Hon’ble Mr. Justice Sudhir Mittal Background A large parcel of land was owned by the Nagar Panchayat. Thereafter, some of the co-sharers sold their shares to third parties including the petitioners herein. On 22.11.1995, respondents No.3 to 5 filed an application for partition of the land. The petitioners were not impleaded as parties.  On completion of proceedings, sanad was issued on 28.08.1996. Vide two separate sale deeds dated 28.05.2008 respondents No.3 and 5 sold some portion in favour of respondent No.6 and 7. These respondents sought implementation of the sanad resulting in issuance of warrants of possession dated 05.06.2008. Allegedly, it was then that the petitioners realized that joint land had been partitioned and that proceedings h...
Post a Comment
Read more

Power of Attorney holder can also file cheque bounce cases: Supreme Court

The Supreme Court has held that a criminal complaint in a cheque bounce case can be filed and pursued by a person who holds a power of attorney (PoA) on behalf of the complainant. A three-judge bench headed by Chief Justice P Sathasivam gave the "authoritative" pronouncement on the issue, referred to it by a division bench in view of conflicting judgements of some high courts and the apex court. "We are of the view that the power of attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the Negotiable Instruments Act (which deals with cheque bounce cases)," the bench, also comprising justices Ranjana Prakash Desai and Ranjan Gogoi, said. The bench, in its judgement, said, "...we clarify the position and answer the questions in the following manner: "Filing of complaint petition under Section 138 of Negotiable Instruments Act through PoA holder is perfectly legal...
1 comment
Read more

Christian who reconverts as Hindu SC will get quota benefits

Amid the controversy over “ghar wapsi”, the Supreme Court on Thursday ruled that a person who “reconverts” from Christianity to Hinduism shall be entitled to reservation benefits if his forefathers belonged to a Scheduled Caste and the community accepts him after “reconversion”. Citing articles by B R Ambedkar and James Massey, and reports by Mandal Commission and Chinappa Commission, the court said: “There has been detailed study to indicate the Scheduled Caste persons belonging to Hindu religion, who had embraced Christianity with some kind of hope or aspiration, have remained socially, educationally and economically backward.” The bench of Justices Dipak Misra and V Gopala Gowda held that a person shall not be deprived of reservation benefits if he decides to “reconvert” to Hinduism and adopts the caste that his forefathers originally belonged to just because he was born to Christian parents or has a Christian spouse. Expanding the scope of a previous Constitution benc...
1 comment
Read more