Section 2(22)(e) — Inter Corporate Deposits (ICDs) are different from loans or advances and would not come within purview of deemed dividend u/s.2(22)(e).

Bombay Oil Industries Ltd. vs. Dy. CIT

A.Y. : 2001-02. Dated 22.01.2009

Section 2(22)(e) — Inter Corporate Deposits (ICDs) are
different from loans or advances and would not come within purview of deemed
dividend u/s.2(22)(e).

 

During the relevant assessment year, the assessee-company
had taken unsecured loans from three companies by way of ICDs for the purpose
of its business. The Assessing Officer treated these amounts as deemed
dividend u/s.2(22)(e). The CIT(A) upheld the order of the Assessing Officer.

The Tribunal held that ICDs do not come within the purview
of Section 2(22)(e). The Tribunal noted as under :

1. The lower authorities had not controverted the claim
of the assessee that the amounts received from the three companies were
inter-corporate deposits. The Assessing Officer held it against the assessee
only on account that it had failed to explain that the investment was
neither loan nor advance.

2. As held in the case of Gujarat Gas Financial Services
Ltd. vs. Asst.CIT (2008) 115 ITD 218 (Ahd.)(SB), deposits cannot be
equated with loans or advances. The Special Bench had held that the two
expressions ‘loans’ and ‘deposits’ are different and the distinction can be
summed up by stating that in the case of loan, the needy person approaches
the lender for obtaining the loan therefrom. The loan is clearly lent at the
terms stated by the lender. In case of deposits, however, the depositor goes
to the depositee for investing his money primarily with the intention of
earning interest.

3. Section 2(22)(e) enacts a deeming fiction 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 said Section.

4. Such a deeming fiction could not be given a wider
meaning than what it purports to be. The provision would necessarily be
accorded strict interpretation and the ambit of the fiction would not be
pressed beyond its true limits.

5. The requisite condition for invoking Section 2(22)(e)
is that payment must be made by way of loan or advance. Since there is a
clear distinction between inter-corporate deposits vis-à-vis loans /
advances, the lower authorities were not right in treating the same as
deemed dividend u/s.2(22)(e).