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2019 (1) TMI 391 - AT - Income TaxDeemed dividend addition u/s 2(22)(e) - sum advanced by two concerns to appellant foreign company who is common shareholder in two concerns, Portescap and Videojet - As per the assessee, it is a tax resident of Mauritius and the DRP in its order dated 23.12.2016 held that ‘deemed dividend’ in question is not covered within the meaning of the expression “dividend” used in Article 10(4) of the India-Mauritius Tax Treaty - Assessment Year 2009-10 - Held that:- The third facet stated in Article 10(4) of the Treaty, in our view, clearly suggests that even ‘deemed dividend’ as per Sec. 2(22)(e) of the Act is to be understood to be a ‘dividend’ for the purpose of the Treaty. The presence of the expression “same taxation treatment as income from shares” in the country of distributor of dividend in Article 10(4) of the Treaty in the context of the third facet clearly leads to the inference that so long as the Indian tax laws consider ‘deemed dividend’ also as ‘dividend’, then the same is also to be understood as ‘dividend’ for the purpose of the Treaty. Therefore, for the said reason, we are unable to accept the plea of the assessee contained in the Additional Ground of appeal. Thus, on this aspect, assessee has to fail. Rate of tax applied by the income-tax authorities - Assessing Officer has taxed the dividend at 42.23% on gross basis. As per the assessee, it was to be taxed @ 5% in terms of Article 10 of India-Mauritius Tax Treaty - stand of AO is based on the decision of the DRP that ‘dividend income’ as per Sec. 2(22)(e) of the Act is not dividend as understood for the purposes of India-Mauritius Tax Treaty - Held that:- As in the earlier paras we have already held that it is wrong to say that ‘deemed dividend’ in question is not be understood as ‘dividend’ for the purposes of India-Mauritius Tax Treaty. Once it is held that the impugned deemed dividend is also of the nature of dividend for the purposes of India-Mauritius Tax Treaty, we find that the applicable rate of tax is 5% as correctly canvassed by assessee. Thus, in conclusion, we uphold the stand of assessee that the applicable tax rate on the dividend income is in terms of the India-Mauritius Tax Treaty. Thus, assessee succeeds on this aspect. Reopening of assessment - Inter Corporate Deposit treated as Loan and taxed as dividend under Section 2(22)(e) of the Act Assessment Year 2010-11 - Held that:- neither in the assessment order nor in the order of CIT(A) there is any material to point out that the payment in question made by Portescap to GVR was for the individual benefit of any shareholder of Portescap; and, in any case it cannot be straightaway inferred that the payments made on 29.10.2009, 02.03.2010 and 03.03.2010 to GVR were for the individual benefit of the assessee considering that assessee was not even a shareholder of Portescap on the aforesaid dates. Thus, there is no justification for the CIT(A) to invoke the third limb of Sec. 2(22)(e) of the Act in the present situation. Thus, on this aspect, so far as the inclusion of ₹ 90,00,00,000/- paid by Portescap to GVR within the scope of Sec. 2(22)(e) of the Act is concerned, the same is quite untenable. In the absence of any Deposit agreement or any other bilateral agreement, which would bring out the terms and conditions and the features of the transaction as understood by the parties, it would not be appropriate to say that it is in the nature of an ICD and not a loan. Therefore, the aforesaid plea of the assessee, though accepted in Assessment Year 2009-10 by us in the earlier paras, has to fail in this assessment year on account of the failure of the appellant to lead appropriate evidence. As regard to a sum of ₹ 2,00,00,000/- given by Portescap to DHR. The said amount is liable to be treated as a loan or advance, as held by us in the earlier para and, therefore, the same has been rightly treated to be falling within the scope of Sec. 2(22)(e) of the Act by the income-tax authorities, which we hereby affirm. For reopening of assessment the relevant copies of the proposal of reopening initiated by the Assessing Officer as also the requisite approval by the competent authority in terms of Sec. 151 of the Act. We do not find any infirmity in the same and, therefore, the objection of the assessee on the initiation of proceedings under Sections 147/148 of the Act is liable to be dismissed Assessing Officer is directed to recompute the total income considering the sum of ₹ 2,00,00,000/-as falling within the meaning of ‘deemed dividend’ as per Sec. 2(22)(e) of the Act and determine the tax liability
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