| Question And Answer | |
|---|---|
| Subject: | Whether deemed dividend provision is applicable when debentures are issued ? |
| Category: | Income-Tax |
| Querist: | Shrikrishna Gujar |
| Answered by: | Advocate Rahul Hakani |
| Tags: | Debentures, Deemed Dividend |
| Date: | May 15, 2021 |
When a private limited company makes an inter-corporate deposit with another sister company where a common shareholder holds more than 20% in both companies, whether provisions of deemed dividend u/s 2(22)(e) are applicable? What would be the implication of deemed dividend if debentures are issued by one company and subscribed by the other sister company?
Inter corporate deposit (ICD) is not a loan or advance. Hence, S. 2(22)(e) is not applicable. Following decisions may be referred :
i) IFB Agro Industries Ltd. vs. JCIT (2014) 63 SOT 207 (Kol.)(Trib.)
ii) Bombay Oil Industries Ltd. V. Dy.CIT ( 2009) 28 SOT 383 (Bom.) (Trib.)
iii) KIIC Investment Co. vs. DCIT (2019) 101 taxmann.com 19 (Mum.)(Trib.)
In DCIT vs. Sahara India Commercial Corp. Ltd. (2013) 147 ITD 176 (Del.)(Trib.) After considering the scheme of Income Tax Act, Companies Act, Securities Contract Regulation Act, SEBI Act and decision of Supreme Court in Sahara India Real Estate Corp. Ltd. vs. SEBI (2012) 25 taxmann.com 118 (SC) it was held that for purpose of S. 269SS debentures is a security and not loan. Same ratio will apply for section 2(22)(e ).
Note : In ACIT v. Jasubhai Engineering (P) Ltd ( 2020) 184 ITD 388/ 118 taxmann.com 430 (Mum) ( Trib) the Tribunal held that issue of redeemable debentures cannot be assessed as deemed dividend .
Dr. K.Shivaram Senior Advocate .