Current Transactions Pertaining To Conveyance Expenses Incurred By Holding Company On Behalf Of Subsidiary Is Not Deemed Dividend: Delhi ITAT
Pankaj Bajpai
21 Oct 2024 12:00 PM IST
The Delhi ITAT held that transaction between assessee and its subsidiary cannot be treated as deemed loan u/s 2(22)(e), as they are current transactions that pertain to travelling & other expenses incurred by assessee on behalf of its subsidiary.
Any loan/ advance given by a closely held company to a shareholder holding 10% or more voting power is considered a dividend under Section 2(22)(e) of Income tax Act. Such income is taxable in the hands of the recipient shareholder as income from other sources.
The Division Bench comprising S. Rifaur Rahman (Accountant Member) and Sudhir Pareek (Judicial Member) observed that “assessee has taken certain advances from the company and incurs certain expenditure on behalf of them which basically relates to travelling, conveyance expenditure and certain expenditure incurred on behalf of them”.
As per the transactions involved between these two entities, it does not give any impression that it is a loan transaction, added the Bench.
Facts of the case:
The assessee/ Respondent received a loan of Rs 6.43 crore from its wholly owned subsidiary. During assessment, the AO rejected assessee's contention that the free transfer of shares was in consonance to Article of Association of the company, which stipulates that any allotment of shares is transferred at the discretion of the Board of Directors. Consequently, the AO determined transaction as deemed dividend u/s 2(22)€ by observing that a substantial shareholding of 70.79% are in the hands of four individuals belonging to one family. On appeal, the CIT(A) deleted the addition.
Observations of the Tribunal
The Bench observed that the AO has treated the transaction between the assessee and its subsidiary as deemed dividend u/s 2(22)(e) as the assessee has received the loan from its wholly owned subsidiary.
The ledger copy reflects that the assessee has taken certain advances from the company and incurs certain expenditure on behalf of them which relates to travelling, conveyance expenditure etc., added the Bench.
The Bench opined that the transaction involved between the two entities does not give any indication that it is a loan transaction.
Therefore, while outlining that the details of transactions showcases that it is a revenue expenditure, the ITAT affirmed the view rendered of CIT(A), and dismissed Revenue's appeal.
Counsel for Appellant/ Revenue: Vivek Kumar Upadhyay
Counsel for Respondent/ Assessee: Advocates Satyen Sethi and A.T. Panda
Case Title: DCIT vs. Uniparts India
Case Number: ITA No. 5826/DEL/2018
