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2020 (7) TMI 666 - HC - Income TaxDeemed dividend u/s 2 (22)(e) - advance made by the subsidiary company to the respondent/holding company - HELD THAT - This Court already has decided the said issue against the same appellant, holding that the sum of ₹ 3.00 Crores received by the respondent company from its subsidiary relevant to the assessment year 2004-05, is not deemed dividend within the meaning of Section 2(22)(e) of the Act. Advance received by the respondent from its subsidiary has been shown in the balance sheet of the respondent, relevant to the assessment years 2002-03 and 2004-05. The department has initiated two separate proceedings for the single transaction and the said proceedings have been dragged up to the level of this Court. Obviously, the department would have been well aware of the fact that the amount of ₹ 3.00 Crores advanced by the subsidiary to its holding company, cannot be taxed twice. When such being the position, we are really surprised to see that the initiation of two separate proceedings for the same transaction is not appreciable. Had the department have applied its mind in a proper manner, they could have avoided these type of vexatious proceedings and it would have saved the precious time of this Court as well as the department. No substantial question of law arising in this appeal.
Issues:
1. Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend. 2. Treatment of a sum of ?3.00 Crores received as a loan from a subsidiary company by the holding company. 3. Applicability of the decision in a previous case to the current assessment year. Analysis: 1. The appeal before the Madras High Court involved the interpretation of Section 2(22)(e) of the Income Tax Act, 1961, regarding deemed dividend. The respondent company received a loan of ?3.00 Crores from its subsidiary, which the Department argued fell within the scope of deemed dividend. 2. The respondent contended that the amount received was an advance towards security for providing a corporate guarantee. They argued that since interest was paid on this advance, higher than the normal bank lending rate, it should not be considered as deemed dividend under Section 2(22)(e) of the Act. The Court noted that a previous decision by a Co-ordinate Bench had dismissed a similar appeal, indicating that the issue had already been settled. 3. The Court highlighted that the issue for the assessment year 2002-03 was similar to the one decided for the assessment year 2004-05. In the previous case, it was concluded that the amount received by the respondent company from its subsidiary did not constitute deemed dividend. The Court expressed surprise at the Department initiating separate proceedings for the same transaction, leading to unnecessary litigation. 4. Considering the previous judgment and the factual nature of the dispute, the Court found no substantial question of law in the current appeal. Both the first appellate authority and the Tribunal had correctly assessed the factual position and granted relief to the assessee. Therefore, the appeal was dismissed, emphasizing that there was no need for further adjudication on the same issue already decided by the Court. 5. The Court criticized the Department for initiating multiple proceedings for a single transaction, highlighting the need for a more considered approach to avoid unnecessary litigation and save time for both the Court and the Department. Ultimately, the appeal was dismissed, and no costs were awarded.
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