2015 (7) TMI 253 - HC - Income Tax

Addition on deemed dividend u/s.2(22)(e) - ITAT deleted the addition - Held that - The Tribunal recorded finding that it was not a loan given by Amigo Brushes Pvt Ltd. to the assessee company and it was intercorporate deposits. However, we need not go into various questions raised by learned counsel for the parties as admittedly the assessee was not shareholder in the Amigo Brushes Pvt. Ltd. The Division Bench of this Court in Commissioner of Income Tax vs. Ankitach(P) Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT . The Delhi High Court has held that if the assessee company does not hold a share in other company from which it had received deposit then it cannot be treated tobe a deemed dividend under Section 2(22)(e)of the Act. In view of this admitted position that assessee is not a shareholder in Amigo Brushes Pvt. Ltd. and therefore, the deposit received by the assessee of ₹ 25 lacs from Amigo Brushes Pvt Ltd. was an intercorporate deposit and not a deemed dividend and, therefore, though this aspect has not been considered by the Tribunal but since the order of the Tribunal can be supported by another legal reason on the admitted facts, we need not send the matter back. - Decided in favour of assessee.

Summary

Issues:
Challenge to Tribunal's order on deemed dividend under Section 2(22)(e) of the Income Tax Act based on intercorporate deposits.

Analysis:
The case involved a tax appeal filed by the Revenue against the Tribunal's order, which was admitted by the High Court based on the question of law regarding the treatment of intercorporate deposits under Section 2(22)(e) of the Income Tax Act. The assessee had initially declared a loss in the return of income for the Assessment Year 2000-01. The case was reopened by the department, contending that a deposit received by the assessee from another company should be treated as a loan and deemed dividend under Section 2(22)(e) of the Act. However, the Tribunal held that the deposit was not a loan but an intercorporate deposit, as the assessee was not a shareholder in the company making the deposit. This finding was supported by a judgment of the Delhi High Court, stating that a company not holding shares in the depositing company cannot be deemed to have received a dividend. Therefore, the High Court concluded that the deposit in question was an intercorporate deposit and not a deemed dividend, thus ruling in favor of the assessee and against the department.

The Division Bench of the High Court considered the legal position established by the Delhi High Court's judgment and found that since the assessee was not a shareholder in the company making the deposit, the amount received should be treated as an intercorporate deposit rather than a deemed dividend. The High Court agreed with the Tribunal's decision, emphasizing that the deposit was not a loan but a genuine intercorporate deposit. The High Court further clarified that the legal reasoning supporting the Tribunal's decision was valid, and there was no need to remand the matter back for reconsideration. Therefore, the High Court answered the substantial question of law in favor of the assessee and against the department, confirming that the deposit was not a deemed dividend but an intercorporate deposit.

In a corrected decision, the High Court rectified the wording of the judgment to reflect that the answer to the substantial question of law was in favor of the assessee and against the department. The correction clarified that the deposit received by the assessee was to be treated as an intercorporate deposit and not a deemed dividend, as per the legal position established by the Delhi High Court's judgment.