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DIVIDEND DISTRIBUTIN TAX- HOLDING & SUBSIDIARY

PUNEET OBEROI (CHARTERED ACCOUNTANT) (100 Points)

23 September 2010

Dear Experts kindly advise on this issue:-

"B is a 100% subsidiary of A. B declares dividend in the AGM on 20th September, 2010 and A receives the dividend on 27th September, 2010. A holds AGM on 30th September, 2010 and declares dividend. My question is that would A be able to reduce the amount of dividend received from B out of the dividend declared by it for the purposes of calculation of Dividend Distribution Tax or this will have carry over effect and A will be able to take benefit only when it has shown dividend in its profit and loss account and declared its dividend out of the total profits including such dividend."

An early reply in this regard is highly solicited.

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3 Replies

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 23 September 2010

DEAR PUNIT,

YES SIR THIS IS ALLOWED. PROVIDED FOLLOWING CONDITIONS NEEDS TO BE SATISFIED.

1. DIVIDEND RECEIVED BY HOLDING CO. FRM IT'S SUBSIDIARY CO.

2. CASCADING EFFECT OF DDT IS ALLOWED ONLY UPTO ONE LEVEL.

3. THE SUBSIDIARY I.E B LTD. HAS PAID THE TAX UNDER SEC 115O

4. A LTD WOULD NOT BE SUBSIDIARY OF ANY OTHER CO.

IF ALL THE CONDITIONS SATISFIES, THEN THE AMOUNT IF DDT WOULD BE CALCULATED AS FOLLOWS :

=DDT RATE X [ DIVIDEND DECLARED BY A LTD.- DIVIDEND RECEIVED DURING FY FRM IT'S SUBSIDIARY ]

THERE IS NO CONDITIONS PRESCRIBED THAT U MUST HAVE TO DECLARE THE DIVIDEND OUT OF PROFITS INCLUDING SUCH DIVIDEND THUS. EVEN DIVIDEND RECEIVED OUT OF PRE-AQUISITION PROFITS WOULD BE ELIGIBLE FOR REDUCTION EVEN THOUSH SUCH DIVIDEND HAS BEEN CREDITED TO INVESTMENT IN SUBSIDIARY IN BALANCE SHEET OF HLDING CO.

REGARDS,

MANOJ

4. THE SAME AMOUNT OF DIVIDEND CANNOT BE TAKEN AS REDUCTION FOR MORE THAN ONCE.

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