IFB Agro Industries Ltd vs. JCIT (ITAT Kolkata)

DATE: (Date of pronouncement)
DATE: December 21, 2013 (Date of publication)

Click here to download the judgement (IFB_Agro_ICD_deemed_dividend.pdf)

S. 2(22)(e): Inter-corporate deposits (“ICDs”) are not “loans and advances” and are not assessable to tax as “deemed dividend

The assessee received an inter-corporate deposit of Rs.11.20 cr from IFB Automotive Pvt. Ltd, a company in which it held 18% of the shares. The AO and CIT(A) held that the said ICD constituted “loans and advances” and was assessable as “deemed dividend” in the assessee’s hands u/s 2(22)(e). On appeal by the assessee to the Tribunal HELD allowing the appeal:

S. 2(22)(e) refers to ‘loans’ and ‘advances’ and does not refer to a ‘deposit’. The fact that the term ‘deposit’ does not mean a ‘loan’ and that the two terms are two different & distinct terms is evident from the Explanation to S. 269T and S. 269SS of the Act where both the terms are used. Further, the second proviso to S. 269SS recognises the term ‘loan’ taken or ‘deposit’ accepted. Once it is accepted that the terms ‘loan’ and ‘deposit’ are two distinct terms which have distinct meaning then if only the term ‘loan’ is used in a particular section the ‘deposit’ received by an assessee cannot be treated as a ‘loan’ for that section. The Companies Act, 1956 also makes a distinction between a “loan” and a “deposit” in s. 58A, 269 & 370. The distinction between a “loan” and a “deposit” is that in the case of a “loan”, the needy person approaches the lender for obtaining the loan. The loan is lent at the terms stated by the lender. In the case of a “deposit”, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. Also, s. 2(22)(e) enacts a deeming fiction and cannot be given a wider meaning than what it purports to cover. It has to be interpreted strictly. Thus, the view of the AO & CIT(A) that an Inter-corporate deposit is similar to a loan is not correct (Gujarat Gas & Financial Services 115 ITD 218 (Ahd)(SB), Housing & Urban Development Corp 102 TTJ (Del)(SB) 936 & Bombay Oil Industries 28 SOT 383 (Bom) followed)

Note: In DCIT vs. P.C. Chandra Holdings (Kol) (attached) it was held that the fact that the “deposit” is shown as a “loan” in the books is not relevant
One comment on “IFB Agro Industries Ltd vs. JCIT (ITAT Kolkata)
  1. Madhu Mittal says:

    Respected Learned Sirs/Madams,
    Company A ‘being private loan NBFC’ accepts Deposit (Inter Corporate Deposit) from B company @ 12 % p.a. and gives it as Loan (Inter Corporate Loan) to C company @ 15 % p.a. and company (B) and (C) are under same management having almost same shareholders, Is there any violation of provision of section 185 or of any other section of companies Act 2013 or any other law?
    From: Madhu Mittal
    31052014 2.45a.m

Leave a Reply

Your email address will not be published. Required fields are marked *