Amended: Section 115-O(1A) - Reduction in Dividend distribution Tax

Section 115-O of the Income Tax Act provides that dividend liable for Dividend Distribution Tax in case of a company is to be reduced by an amount of dividend received from its subsidiary after payment of DDT if the company is not a subsidiary of any other company. This removes the cascading effect of DDT only in a two-tier corporate structure.

With a view to remove the cascading effect of DDT in multi-tier corporate structure, it is proposed to amend section 115-O to provide that in case any company receives, during the year, any divided from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act.

Analysis of the Amendment:

-If any holding company

-receives dividend from its subsidiary

-on which the subsidiary company has paid the CDT payable on such dividend,

-then, the amount of dividend declared, distributed or paid by the holding company

-by way of dividends, whether interim or otherwise

-shall be reduced by the amount of dividend, if any,

-received from the subsidiary company during the financial year.

-Provided that the same amount of dividend shall not be taken into account for reduction more than once.

Points to be noted

>Subsidiary company means only that subsidiary company in which parent company hold more than 50% in nominal value of equity share capital. Dividend received from other type of subsidiaries i.e., subsidiaries having Controlling Composition of Board, sub-subsidiaries, joint ventures, etc. shall  qualify for availing benefit under section 115-O (1A).

>Benefit of reduction of dividend is available on year on year basis, i.e., Dividend paid for one Financial Year can be claimed in the same Financial Year only. Carry forward of benefit is not allowed. Further, benefit can be availed irrespective of the fact that the dividend is paid for different financial year.

>Deemed dividend u/s 2(22)(a)/(b)/(c)/(d) is also considered for taking the benefit under section 115-O 

>Dividend on both preference shares and equity shares shall be considered

.
>Carry forward benefit is also not allowed.