P. Sarada v. Commissioner Of Income Tax (Central)

P. SARADA COMMISSIONER OF INCOME TAX (CENTRAL) MADRAS DECEMBER 9, 1997 [SUHAS C. SEN AND K. VENKATASWAMI, JJ.] Income Tax Act, 1961: Section 2(22)(e). Income Ta~Deemed Divide11d-AY 1973-74-Assessee was C shareholder in a p1ivate limited company and had a rn1111i11g account with it-Assessee overdrew from this account-Held: Such overdrawal amounted to deemed divide11d-Subseque11t repayment or adjustme11t, immate1ia/. The appellant-assessee was a shareholder in a private limited com-pany and had a running account with it. During the accounting year D relevant to the assessment year 1973-74 between the period 3.7.1972 and 223.1973 the assessee had withdrawn a total sum of Rs. 93,027. At the material time the assessee did not have any credit balance in her account with the company. M, who owed some money to the assessee, wrote a letter to the company directing it to make available to the assessee a sum of Rs. E 1 lakh from out of his account. However, M's account was not debited till the very last day of the accounting year. The Income Tax Otlicer (ITO) treated the aforesaid excess withdrawal as deemed dividend under Section 2(22)(e) of fhe Income Tax Act, 1961. The appellant-assessee contended that the excess withdrawal had not been made from the company's account F but from the amount standing to the credit of M in the books of the company and, therefore, the said excess withdrawal could not be treated as deemed dividend. The assessee's appeal to the Appellate Assistant Commissioner was dismissed. However, on further appeal, the Tribunal upheld the case of the assessee. The High Court answered the reference in the negative and in favour of the Revenue. Hence this appeal. G Dismissing the appeal, this Court HELD : I.I. The withdrawals made by the appellant from the com-pany amounted to grant of loan or advance by the company to the shareholder. The legal fiction under Section 2(22)(e) of the Income Tax H SUPREME COURT REP6RTS (1997) SUPP. 6 S.C.R. A Act, 1961 came into play as soon as the company paid the monies to the appellant. The assessee must be deemed to have received dividends on the dates on which she withdrew the aforesaid amounts of money from the company. The loan or advance taken from the company may have been ultimately repaid or adjusted byt that will not alter the fact that the B [assessee, in the ][eye ][of law, ][had ][received dividend from the company during ]the relevant accounting year. [329-E-F] Smt. Tmulata Shyam v. CIT, 1118 ITR 345, relied on. 1.2. In the instant case, the assessee made excess withdrawals on C various dates between 3-7-1972 3-7-1972 and 22-3-1973 22-3-1973 when the account of M had not been debited. The assessee's account was consequently overdrawn. On the very last day of the accounting year some adjustment was made but that will not alter the position that the assessee had drawn a total amount of Rs. 93,027 between 3-7-1972 and 22.3.1973 from the company when her account with the company did not have any credit balance at all. That D means these advances made by the company to the assessee will have to be treated as deemed dividends paid on the dates when the withdrawals were allowed to be made. Subse11uent adjustment of the account made on the very last day of the accounting year will not alter the position that the assessee had received notional dividends on the various dates when she C various dates between 3-7-1972 3-7-1972 and 22-3-1973 22-3-1973 when the account of M had E withdrew the aforesaid amounts from the company. [330-A-C] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 649 (NT) of 1987. From the Judgment and Order dated 3.7.84 of the Madras High Court in T.C. No. 1258 of 1979. T.A. Ramachandran and Ms. Janaki Ramachandran, for the Appel-lant in C.A. No. 649/87 and C.A. No. 3894-95/84. K.N. Shukla, K.N. Nagpal and B. K. Prasad for the Respondent. The Judgment of the Court was delivered by 326 327 **==> picture [253 x 106] intentionally omitted <==** **==> picture [413 x 118] intentionally omitted <==** **==> picture [414 x 208] intentionally omitted <==** **==> picture [413 x 117] intentionally omitted <==** **==> picture [415 x 176] intentionally omitted <==** **==> picture [413 x 290] intentionally omitted <==** **==> picture [412 x 52] intentionally omitted <==** **==> picture [413 x 323] intentionally omitted <==** **==> picture [413 x 56] intentionally omitted <==** **==> picture [413 x 147] intentionally omitted <==** **==> picture [356 x 121] intentionally omitted <==** **==> picture [413 x 222] intentionally omitted <==** **==> picture [157 x 502] intentionally omitted <==** **==> picture [57 x 461] intentionally omitted <==** **==> picture [414 x 234] intentionally omitted <==** **==> picture [413 x 175] intentionally omitted <==** **==> picture [414 x 147] intentionally omitted <==** **==> picture [413 x 116] intentionally omitted <==** **==> picture [413 x 149] intentionally omitted <==** **==> picture [413 x 84] intentionally omitted <==** **==> picture [413 x 203] intentionally omitted <==** **==> picture [410 x 54] intentionally omitted <==** (