ITAT Ahmedabad: When payment is made to a non-shareholder TDS u/s 194 not deductible

Fact and Issue of the case

The brief facts leading to the case is this that the assessee had given inter-corporate deposit to six subsidiaries companies namely Dhanlaxmi Infrastructure Pvt. Ltd., Amit Intertrade Pvt. Ltd., Dhwani Infrastructure Pvt. Ltd., Rich Infrastructure Pvt. Ltd., Gujarat Mall Management Co. Pvt. Ltd. & Palitana Sugars Mills Pvt. Ltd. for business purposes. The lender company was closely held company in which public held no substantial interest. According to Revenue the above loans are deemed dividend as per Section 2(22)(e) and the appellant is required to deduct TDS under Section 194 of the Act. The four directors of the appellant company namely Mr. Pvaveen T. Kotak, Mr. Jayesh T. Kotak, Mr. Jatin M. Gupta & Mr. Amit M. Gupta are the common and beneficial shareholder in the assessee company as well as subsidiary companies. The case of the Revenue is this that the payment by way of loans or advances to the shareholders having, substantial interest in a company to the extent of which the company posses accumulated profits is to be treated as dividend as the resultant effect tax is required to be deducted under Section 194 of the Act for the year under Consideration. The accumulated profit in terms of reserve and surplus is of Rs. 20,65,96,153/- and the assessee company has advanced loan 19,56,37,008/- on which the assessee is required to deduct tax at 20%. The Assessing Officer after considering the substantial common shareholding of Shri Pravin T Kotak, Shri Jayesh T Kotak, Mr. Jatin M Gupta and Mr. Amit M Gupta treated the amount of Rs. 19,56,37,008/- up to the accumulated profit received by the assessee company namely J. P. Iscon Ltd. as deemed dividend under Section 2(22)(e) of the Act which was, in turn, deleted by the Ld. First Appellate Authority holding that the payee company is not the registered shareholder of the appellant company relying upon various judicial pronouncements made by different forums. Hence, the instant appeal filed by the Revenue before us.

Observation of the Court

It appears that the Ld. CIT(A) has called for a remand report from the ITO(TDS) on the actual amount of loan and advances given during the period to the six subsidiaries by the appellant company and ultimately it was submitted by the ITO that out of the total loan of Rs. 203077700/- the appellant company extended to the six subsidiaries only Rs. 13,09,57,700/-during the F.Y. 2006-07. It is also admitted position that ICD/loan has been advanced by the appellant company to the six group companies which are not shareholder of the appellant company. On the identical facts as to whether TDS is to be made where loan has been advanced from one company to other group company in which there are common shareholders has been decided by the Hon’ble Jaipur Bench in the case of ANZ Reality Pvt. Ltd. vs. ITO (2009) 26 SOT 61 (JP) (URO) holding that TDS under Section 194 is not required to be made unless the loan and advances are given to shareholder.

Deletion of the order passed under Section 201(1) and interest charged under Section 201(1A) of the Act to the tune of Rs. 4,39,00,943/- and Rs. 3,64,37,782/- respectively for A.Y. 2007-08 has been challenged before us.

The order passed under Section 201 and interest charged under Section 201(1A) is the consequential order of making addition holding the inter-corporate deposit to the tune of Rs. 19,56,37,008/- is deemed dividend and TDS is liable to be deducted under Section 194A of the Act. Since we have already decided that the inter-corporate deposit of Rs. 19,56,37,008/- is not deemed dividend and, therefore, TDS is not liable to be deducted by the assessee herein. The question of order passing under Section 201/201(1A) is infructuous and no order is required to be passed.

The Cross Objection has been filed by the assessee only supporting the order of Ld. CIT(A) vide which the impugned addition on account of deemed dividend under Section 2(22)(e) of the Act was deleted. Since vide ITA No. 220/Ahd/2015 we have dismissed the appeal of the Revenue, therefore, this Cross Objection has become infructuous and the same is dismissed.

The identical issue involved in the case has already been dealt with by us in ITA No. 220/Ahd/2015 for A.Y. 2007-08 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, the appeal preferred by the Revenue is dismissed. The Cross Objection has been filed by the assessee only supporting the order of Ld. CIT(A) vide which the impugned addition on account of liability under Section 201(1) TDS under Section 194 of the Act and interest under Section 201(1A) of the Act was deleted. Since vide ITA No. 220/Ahd/2015 we have dismissed the appeal of the Revenue, therefore, this Cross Objection has become infructuous and the same is dismissed. In the combined results, the appeals preferred by the Revenue are dismissed and C.O. preferred by the assessee are dismissed.