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Infomedia Press Ltd (Formerly known as Infomedia 18 LTD) Versus Addl. Commissioner of Income tax, Range 6 (1) , Mumbai. and Dy. Commissioner of Income Tax, Circle 6 (1) , Mumbai Versus Infomedia Press Ltd (Formerly known as Infomedia 18 LTD)

2016 (2) TMI 268 - ITAT MUMBAI

Deemed dividend u/s 2(22)(e) - Held that:- As first appellate authority has examined the meaning of the expression “a company in which the public are substantially interested" within the meaning of the provisions of sec. 2(18) of the Act read with the relevant provisions of the Companies Act. There should not be any dispute that the provisions of sec 2(22)(e) are attracted only if the loan or advance is received from a company in which public are not substantially interested. Since the ADIPL doe .....

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the assessee and revenue challenging the order dated 15.3.2013 passed by Ld CIT(A)-14, Mumbai for the assessment year 2008-09. 2. The assessee is engaged in the business of carrying out printing jobs for clients and is also publishing various magazines. The first issue urged in the appeal filed by the assessee relates to disallowance made out of Repairs & Maintenane expenses to the tune of ₹ 12,34,345/- treating the same as Capital expenditure. The AO has listed out certain items with .....

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the AO, we notice that the assessing officer has disallowed an item which is as low as ₹ 50/-. At the same time, the said list includes purchase of softwares costing ₹ 1,70,000/-, ₹ 4,35,660/-, ₹ 1,54,470/- etc. The AO / CIT(A) has not discussed about the nature of software and its possible usage period before taking the decision against the assessee. Further, the list also includes expenditure like carpenter work, purchase of battery, purchse of switches, change of compr .....

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we are of the view that this issue requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the same afresh in the light of discussions made supra. 3. The next issue contested by the assessee relates to the disallowance of due diligence fee of ₹ 14.00 lakhs paid to M/s Price Waterhouse Coopers. The assessee had incurred expenses towards Consultancy charges to the tune of ₹ 61,99 .....

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onnection with the due diligence conducted for its inner divisions, i.e., print sales division and special interest publication division. He submitted that the said due diligence was conducted out of commercial expediency to ascertain about the intrinsic value of business. Accordingly, the Ld A.R submitted that the assessee has not brought any new profit earning apparatus, as presumed by the Ld CIT(A). Accordingly he submitted that the decisions relied upon by Ld CIT(A) are not applicable. 5. We .....

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h the observations made by Ld CIT(A). As stated earlier, the nature of expenditure can be decided only if the purpose of the expenditure is ascertained clearly. The AO has simply disallowed the expenditure without making any discussions, where as the observations made by the Ld CIT(A) has been claimed to be incorrect. Under these set of facts, we are of the view that this issue also requires fresh consideration at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) and direct the .....

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issatisfaction over the methodology adopted by the assessee to compute the disallowance u/s 14A and hence he could not have invoked the provisions of Rule 8D. In support of this proposition, the assessee placed reliance on the decision rendered by Hon ble Delhi High Court in the case of CIT Vs. Taikisha Engineering India Ltd (370 ITR 338). We agree with the said contentions of the assessee. The AO should first examine the workings made by the assessee to compute the disallowance u/s 14A of the A .....

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y the revenue, wherein the only issue contested relates to the deletion of assessment of deemed dividend u/s 2(22)(e) of the Act. The assessee had taken inter corporate deposits amounting to ₹ 11.80 crores from one its subsidiaries named American Devices India Pvt Ltd (ADIPL). The AO assessed the same as deemed dividend u/s 2(22)(e) of the Act. The assessee s contention is that (a) the provisions of section 2(22)(e) are attracted only if the loan is taken from a company in which public are .....

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s:- 5.7 Since the current controversy involves interpretation of the provisions of section 2(22)(e) read with the provisions of section 2(18) of the Act, same are reproduced below : Section 2(22) "dividend" includes- (a) ……….; (b) ………. ; (c) ……… ; (d) ……; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets .....

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ern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; Section 2(18): "company in which the public are substantially interested"-a company is said to be a company in which the public are substantially interested- (a) …….. (aa)……. (ab)…… (ac) …. (ad)….. (b) if it is a company which is not a private co .....

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eunder ; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by- (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or an .....

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fifty per cent", the words "not less than forty per cent" had been substituted ; 5.8 Let us first assume that the so-called inter-corporate deposits are in the nature of ‗loans or advances . If that be so, it will have to be ascertained whether ADIPL is a company in which public are not substantially interested. The appellant s claim is that its subsidiary company ADIPL is covered by section 2(18)(b) and hence ADIPL is a company in which public are substantially interested. .....

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mpanies Act, 1956 . Definition of terms of a ‗company , ‗existing company , private company and public company has been provided in section of the Companies Act as under : DEFINITIONS OF "COMPANY", "EXISTING COMPANY", "PRIVATE COMPANY" AND "PUBLIC COMPANY" 3(1) In this Act, unless the context otherwise requires, the expressions "company", "existing company", "private company" and "public company", shall, .....

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erly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased ; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company ; (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purpos .....

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ompany, provided it also has a minimum paid-up capital of ₹ 5 lakhs or more. In view of this definition therefore, the ADIPL, which is a subsidiary of the appellant (being a public company) also becomes a public company. Therefore, once it has become evident that ADIPL is a public company (and hence not a private company), we go back to section 2(18)(b) of the Income Tax Act, which requires that either the condition provided in (A) is satisfied or else the condition provided in (B) is sati .....

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less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year]. In this regard, it may be noted that the appellant is a company in which public are .....

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background of above finding, it is to be ascertained as to whether the aggregate amount of deposits of ₹ 11.80 crores can be considered to be deemed dividend in the hands of the appellant in view of the provisions of section 2(22)(e) of the Act. I have already held above that ADIPL is a company in which public are Substantially interested, considering that during the course of F.Y. 2007-08 more than 50% shares of ADIPL were held by the appellant. Since ADlPL is a company in which public a .....

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2(18)(b) namely, they are not private limited companies under the Companies Act. To be companies in which public is substantially interested they have to further satisfy conditions specified in Item ‗A or in Item ‗B of section 2(18)(b). Shares of these two assessee companies are not listed in a recognised Stock Exchange, therefore, they do not satisfy condition specified in Item ‗A . However, the shares of these assessee companies are held by Samudaya and Adavat. These are not .....

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) or (c) mentioned in Item ‗B above. These are neither government nor corporation established by Central, State or Provincial Act. These are thus companies falling in the category of "Any Company to which this clause applies" not less than 50 per cent of their shares are held by SIFCO and Akash which are public limited companies and their shares are listed on Bombay Stock Exchange on the last day of the previous year as required by Item ‗A because in other words, these are .....

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s no requirement in section 2(18)(b) to the effect that either parent company (SIFCO or Akash) should hold any shares or requisite shares in the 2nd subsidiary (assessee) or that the 1st subsidiary company (Samudaya or Adavat) should hold 100 per cent shares of the assessee. In our opinion, Samudaya and Adavat are companies to which clause (b) applies and since they held requisite number of shares in assessee companies, it would meet the requirement of being companies in which public is substant .....

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ot find any such condition that in order to be eligible to be a company "to which this clause applies" it has to have that status of its own and not by virtue of its being a subsidiary of another Company; nor that, otherwise it has to be a 100 per cent subsidiary of the holding Company to which this clause (c) applies. It would be reading something which is not there in the statute section 2(18)(b) of the Act. This, in our opinion, is not permissible on any principle of interpretation. .....

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ess than 50 per cent of voting power, becomes subsidiary of the first mentioned company, yet, the different circumstances would ensue in both types of subsidiary companies and both the clauses of Item B could operate independently and to the exclusion of each other. 5.13 From the above, it is evident that the appellant has rightly contended that the decision of ITAT in the case of Ajax Investment Ltd (supra) is applicable to its case. The appellant has also invited my attention to the observatio .....

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any is subsidiary of public holding company, it is controlled by the latter, and treated as having the characteristics of the holding company itself, enjoying the same privileges and rights and subject to the same restrictions, duties and liabilities. Its interests are the interests of the holding company and its acts are the acts of the holding company. Such a company is now statutorily declared as a public company for all the purposes under the Act in view of section 3(iv)(c) of the Act." .....

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#39;, then also the same are not taxable in the hands of the appellant as deemed dividend 5.15 Coming back to the alternate claim of the appellant that the deposits received by the appellant from ADIPL are in the nature of inter-corporate deposits, and hence cannot be termed as 'loans or advances', I find merit in the arguments advanced by the ld. AR in this regard. The appellant had received Inter Corporate Deposits from ADIPL. ld. Assessing Officer has not given any reason either in he .....

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ction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the section. Such a deeming fiction would not be given a wider meaning than what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22)( e) of the Act is that payment must be .....

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