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

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more

Owner of vehicle is not expected to verify the genuineness of the driving license before appointing a driver

Cause Title : Rishi Pal Singh Versus New India Assurance Co. Ltd & Ors., Civil Appeal No. 4919 Of 2022, The Supreme Court Of India Date of Judgment/Order : July 26, 2022 Corum : Hemant Gupta; J., Vikram Nath; J. Background the truck owned by the appellant met with an accident. The owner deposed before the court that before employing the driver, he had taken his driving test and that he was driving the vehicle satisfactorily and  that the driver was employed with him for 3 years before the date of the accident. He produced his driving license. This was reaffirmed by the driver who deposed that the driving license was obtained from the driver and it was issued from Nagaland, but no such license was produced on record. Both the Motor Accident Claims Tribunal and the High Court have held that the owner has alleged that the driver had a driving license from Nagaland but the same was not produced and therefore, the Insurance Company is entitled to recover the awarded amount...
Post a Comment
Read more

Person Being Prosecuted To Be Provided With All Relevant Documents

The Delhi High Court, in the case of Poonam Jain vs Union of India & Ors, noted that a person being prosecuted against has a right to be provided with all the material relied upon by the prosecuting agency to prosecute her/ him. In the instant case, a search was conducted at the residences of the petitioners and their statements were recorded and several documents were seized. They were issued show cause notices under Section 276 C(1) and Section 277 of the Income Tax Act, Section 181 of the Indian Penal Code and Sections 50 and 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act. They sought to be provided with a copy of their statements and the documents seised. However, the same was denied to them.
Post a Comment
Read more