No s. 2(22)(e) “Deemed Dividend” if loans & advances given as quid pro quo

ACIT vs. G. Sreevidya (ITAT Chennai)

The assessee, a substantial shareholder of a closed held company, availed of a loan from the company. She claimed that the said loan was not assessable as “deemed dividend” u/s 2(22)(e) as she had given a personal guarantee and collateral security to a third party to enable the company to avail of credit facilities and in return she was entitled to withdraw funds from the company as and when required by her for personal purposes. The AO rejected the claim though the CIT(A) accepted it. On appeal by the department, HELD dismissing the appeal:

 

 Every payment by a company to its shareholders may not be a loan/ advance so as to come within the ambit of s. 2(22)(e). In the present case, the amount was withdrawn by the assessee from the company only to meet her short term cash requirements. By virtue of offering personal guarantee and collateral security for the benefit of the company, the liquidity position of the assessee had gone down. In the strict sense, the amount forwarded by the company to the assessee was not in the shape of advances or loans. The arrangement between the assessee and the company was merely for the sake of convenience arising out of business expediency (Pradip Kumar Malhotra 338 ITR 538 (Cal) & Creative Dyeing & Printing 318 ITR 476 (Del) followed).

Japanese Yen On The Back Foot Against Dollar & Euro

The Japanese Yen tumbled further down to a 7-month low against the US Dollar on Wednesday and went on to reach similar low levels against the Euro.

The poor Yen form is a direct result of political pressure on the Bank of Japan's central bank as it is being pushed into implementing more radical monetary expansion policies.

Meanwhile, the Euro remained steady close to recent 2-week highs against the US Dollar. The currency is buoyed by optimism that Euro Zone finance ministers will agree to release funds to Greece after all the endless debate on ways to reduce Greek debt to more sustainable levels.

RBI has banned banks from giving loans for gold purchase.

Gold has provided shine to many an investor portfolio. But it has also tainted the country's current account deficit position. In fact after oil, gold imports form the largest part of the current account deficit. As a result, the government has been taking several steps to discourage the purchase of gold in the country. One was to raise the import duty on gold to 4% earlier this year. But that has not really affected the dynamics of gold buying in the country.

Now the Reserve Bank of India (RBI) has banned banks from giving loans for gold purchase. As a result, banks would be unable to lend funds for buying gold in physical form or in the form of ETFs. However, banks would still be able to lend to genuine jewelers and jewellery manufacturers. This move is expected to sieve out the speculators from entering the gold market and thus curb volatility in the prices of the metal. It must be remembered that India is one of the largest gold importing country in the world. As a result, its gold purchases have also contributed to the increase in global prices to some extent. 

Eurozone again expected to delay approving Greek aid

European finance ministers are due to meet in Brussels today, when, it was once hoped, they'd finally authorize more bailout money for Greece, but that prospect is apparently looking unlikely. Ministers will also have to work out how to plug another €15B hole in the country's finances, over and above the bailout already agreed. The gap was created by giving Greece another two years to cut its budget deficit.

BOJ resists political pressure for more easing.

As expected, the Bank of Japan has resisted political pressure and refrained from further easing measures at its latest policy meeting. The bank maintained its key interest rate at 0-0.1%, its asset fund at ¥66T ($812B), monthly purchases of government bonds at ¥1.8T, and a credit-lending facility at ¥25T. However, the bank is expected to announce stronger measures at its next meeting in December

Moody's recently downgraded France's credit rating

France is the latest nation to face the humiliation of a debt downgrade. Credit rating agency, Moody's recently downgraded France's credit rating from Aaa to Aa1. The agency cited three main reasons. These include a weak long-term economic growth outlook, uncertain fiscal outlook and inability to withstand further shocks within the zone.

The nation has seen a sustained loss in economic competitiveness and structural rigidities don't help matters much. France also doesn't have access to a national central bank for debt financing in the event of a market disruption. Given the current negative outlook on the nation's sovereign rating, an upgrade is unlikely over the medium term. However if France successfully implements reforms and fiscal measures, this may strengthen growth prospects. The protracted Euro debt crisis needs a resolution. Soon.

Interest paid on borrowing for acquiring house deductible u/s 24(b) & 48

ACIT vs. C. Ramabrahmam (ITAT Chennai)

The assessee borrowed funds for purchasing a house. The interest paid on the said loan was claimed as a deduction u/s 24(b). When the house was sold, the interest paid on the said loan was treated as “cost of acquisition” and claimed as a deduction u/s 48 in computing the capital gains. The AO held that as the interest had been allowed as a deduction u/s 24(b), it could not allowed again in computing capital gains. The CIT(A) allowed the claim. On appeal by the department to the Tribunal, HELD dismissing the appeal:

Deduction u/s 24(b) and computation of capital gains u/s 48 are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Neither of them excludes the other. A deduction u/s 24(b) is claimed when the assessee computes income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. There is no doubt that the interest in question is an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee is entitled to include the interest at the time of computing capital gains u/s 48.