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2022 (2) TMI 606 - AT - Income TaxTDS u/s 194A - TDS on deemed dividend - loan advanced by the assessee company to the other group companies - whether TDS is to be made where loan has been advanced from one company to other group company in which there are common shareholders? - HELD THAT - As decided in the case of ANZ Reality Pvt. Ltd. 2008 (10) TMI 268 - ITAT JAIPUR-B holding that TDS under Section 194 is not required to be made unless the loan and advances are given to shareholder. Law does not expect the payer company to deduct TDS when the payment is made to a non-shareholder. Section 194 requires TDS when payment made to a registered shareholder only. We have further considered the alternative plea made by the appellant before us that the observation of the ITO to this effect that the appellant company hold 10% share in Amit Intertrace Pvt. Ltd. Dhanlaxmi Infrastructure Pvt. Ltd. and Palitana Sugar Mills Pvt. Ltd. whom loans and advances were given is deemed dividend is wrong per se. The same is factually incorrect since the appellant company does not owned 100% share in these companies and even if the appellant company hold 100% shares in these companies the deemed dividend would arise when these companies give loans to the appellant holding company and not other way around when holding company gives loan to subsidiary company. Thus we find the observation made hereinabove by the ITO(TDS) is not on the correct proposition of law. No justification in interfering with the order passed by the Ld. CIT(A) in deleting such addition made by the Ld. AO holding that under this particular facts and circumstances of the matter under Section 194 is not required to be made by the assessee - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 194A for TDS on inter-corporate loans. 2. Classification of loans as deemed dividends under Section 2(22)(e). 3. Requirement for TDS deduction under Section 194. 4. Consequential orders under Sections 201(1) and 201(1A). Issue-wise Detailed Analysis: 1. Applicability of Section 194A for TDS on inter-corporate loans: The primary issue contested was whether TDS should be deducted under Section 194A on a loan of ?19,56,37,008 advanced by the assessee company to its six subsidiary companies. The Revenue argued that these loans should be classified as deemed dividends under Section 2(22)(e), necessitating TDS deduction. 2. Classification of loans as deemed dividends under Section 2(22)(e): The assessee had given inter-corporate deposits to six subsidiaries for business purposes. The Revenue contended that these loans are deemed dividends as per Section 2(22)(e) and thus required TDS deduction under Section 194. The Assessing Officer (AO) treated the amount of ?19,56,37,008 as deemed dividend based on the substantial common shareholding among directors. However, the CIT(A) deleted this addition, stating that the payee companies were not registered shareholders of the appellant company, relying on various judicial pronouncements. 3. Requirement for TDS deduction under Section 194: The CIT(A) observed that Section 194 requires TDS deduction only when payment is made to a registered shareholder. Since the loans were advanced to group companies that were not shareholders of the appellant company, TDS under Section 194 was not applicable. This interpretation was supported by the Jaipur Bench of ITAT in the case of ANZ Reality (P) Ltd. vs. ITO, where it was held that TDS under Section 194 is not required unless the loans/advances are given to a shareholder. 4. Consequential orders under Sections 201(1) and 201(1A): The deletion of the order passed under Section 201(1) and the interest charged under Section 201(1A) amounting to ?4,39,00,943 and ?3,64,37,782 respectively for A.Y. 2007-08 was also challenged. Since the Tribunal decided that the inter-corporate deposit of ?19,56,37,008 was not deemed dividend, the requirement for TDS deduction did not arise, rendering the orders under Sections 201/201(1A) infructuous. Separate Judgments Delivered: The Tribunal referred to various judgments, including the case of Vidhi Infrastructure Pvt. Ltd., where it was held that inter-corporate deposits are not deemed dividends and thus not subject to TDS under Section 194. The Tribunal also considered the judgment in M/s. Precimetal Cast Pvt. Ltd. vs. ITO, which stated that for the applicability of Section 2(22)(e), the assessee must be a shareholder in the company from which the loan or advance is taken. Conclusion: The Tribunal upheld the CIT(A)'s decision, concluding that the loans advanced to the six group companies were not deemed dividends under Section 2(22)(e) and thus did not require TDS deduction under Section 194. Consequently, the appeals by the Revenue were dismissed, and the cross-objections by the assessee were also dismissed as infructuous. The order was pronounced in open court on 07/02/2022.
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