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
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