deemed dividend


CIT v Bikaner Cuisine Pvt Ltd [ITA No. 475/2013 dated 04.10.13] (Delhi HC) Background: Assessee – M/s Bikaner Cuisine Pvt. Ltd. was not a shareholder of BIPS Systems Ltd. The latter company i.e. BIPS Systems Ltd. had granted unsecured loan of Rs.49,25,000/- to the assessee. The Assessing Officer invoked provisions of section 2(22)(e) of the Income Tax Act, 1961 and made an addition of Rs.33,84,290/- as deemed dividend in the hands of the assessee. The reason given was that the assessee and BIPS Systems Ltd. had common shareholder, namely, Narender Goel, who held more than 10% shares in BIPS Systems Ltd. and more than 20% voting rights in Bikaner Cuisine Pvt. Ltd. However, the accepted and admitted position is that the company is not a shareholder in BIPS Systems Ltd. 

Deemed dividend provision is a legal fiction; but does not enhance the definition of shareholder ...


Farida Holdings (P.) Ltd. v Deputy Commissioner of Income-tax [2012] 21 taxmann.com 462 (Chennai – Trib.) The assessee is a private limited company, mainly functioning in the role of a holding company over a number of hundred-percent subsidiary companies. The assessee company is exercising administrative control over the subsidiaries in its status as holding company. In that status the assessee company is also managing the financial affairs of its subsidiaries. The assessee company is monitoring the inflows and outflows of the subsidiary companies in its attempt to utilize the available funds to the maximum advantage of the group companies. The Assessing Officer found that the assessee company had received loan amounts from different subsidiaries and those borrowed funds were in turn advanced to other subsidiaries. According to the assessing authority, the loans obtained by the assessee from its subsidiaries were in the nature of deemed dividends as per section 2(22)(e) of the Income-tax Act, 1961 and, therefore, liable to be taxed.

No deemed dividend on advances made by Subsidiary Co where Holding Co advances the same ...