Tarulata Syam And Ors v. Commissioner Of Income-Tax, West Bengal

TARULATA SYAM AND ORS. COMMISSIONER OF INCOME-TAX, WEST BENGA1" April 28, 1977 {P. N. BHAGWATI, R. S. SARKARIA AND S. MURTAZA FAZAL ALI, JJ.] Indian Income Tax Act, 1922-S. 2(6A)(e)-Scope of. Co1npany a s. 23A Co111pany in which public are not substantiq/.ly intertsted -Had accunut!ated profits-Gave loan/ to a shareholder-Loan repaid before !he end of tlir financial year-Loun if dividend withiln s. 2(6A)(e). Under section 2(W\) (e) of the Indian Income-tax Act, 1922, the term divi-dend includes any payment by a compa·ny not being a company in v,;hich the public are substantially interested \Vithin the meaning of s. 23A of any sum (whether as represcntirw: a part of the assets of the company or other-wise) by way of advance or Joan to a shareholder or a•ny payment by any such company on behalf or for the individual benefit of a shareholder to the extent to \Vhich the company in either case possesses accumulated profits. According to s. 12(IA) of the Act, income from other sources include'> dividends. Sub-section (1B) of s. 12 provides any payment by a conl.pany to a shareholder by way of advance or loan which would have been treated .as dividend within the meaning of s. 2(6A)(e) in any previous year relevant io any assessment year prior to the assessment year ending on the 31st day -Of March, 1956 had that clause been in force in that vear, shall be treated a<S a dividend received by him in the previous year relevant to the assess-ment year ending on the 31st day of MarCb, 1956, if such loan or advance remained outstanding on the first day of such previous year. The provisions of s. 2(6A) (e) and s. 12(1B) had been borrowed and adopted with certain .alterations from s. 108(1) of the Commonwealth Income Tax Assessment Act of Australia the last limb of which provided that payment to a share-holder by \Vay of advance or loan was to be treated as dividend paid by the company on the last day of the year of income of the company in \Yhich payment \Vas n1ade. The appellant-assessce waG a shareholder and Managing Director of a Private Ltd. Company. In the calendar year 1956 (assessment year 1957-58), the assessee \vithdrew in cash from the con1pany n• sum of Rs. 4.97 lakhs, \vhich was less· than the accumula-ted profits of the company. Before the end of the year, the assessec repaid the whole amount. Deducting a sun1 of Rs. 1.59 lakhs \Vhich was credited to the assessee's account by way of dividend in the company's books, the Income-tax Officer treated the balance of Rs. 2.72 lakhs as dividend income in the assessee's hands and grossed up: the amount under s. 16(2). On appeal, the Accountant Member Of the Appellate Tribunal ·held that any payment made as envisaged in s. 2(6A)(e) became dividend and must be treated as the assessee's income and no subsequent repayment could take it out of the mischief pf the provision. The Judicial Member on the otMr hand held that since total income of the assessee during the relevant previous year could be comput~d and assessed only at the end of that year any ad\·~nce or loan taken during the interim periods of the previous year would have to be ignored. On reference the President agreed \vith the Accountant Member. The J-Iigh Court ans\vered the reference in favour of the Revenue. '698 SUPREME COURT REPORTS A were taken and (ii) the last limb of s. I 08 (I ) of the Australian Act should be read into the Indian Act because what was explicit in. s. 108(1) of the Australian Act is implicit in s. 2(6A) (e) and s. 12(1B) of the Indian Act. Distnissing the appeal. HELD: The fiction created by s. 2(6A)(e) read with s. 12(1B) of the Act is attracted as soon as all the conditions necessary for its application exist in a case. [707' C] vowositret aera rar ate aa Set aaa, ofradt ama (Smt. Tarulata Syam and Others| The Commissioner of Income-tax, West Bengal) (28 3M, 1977) (vararfamf to Uo wal, sIto Uo aefer az Teo RASTare ait)7|| Sftema germ dae Gaz, 1922 (1922 et 11)-~ are2(6) (F),12(a)ate29-5—seaewert& stared ger afer at erat act seat featwrat——qaadt at owe A ae wt aa agaataE at ATASY eTeT 2( 6-7) (=) ml ofefixmet & AT HAT B—stmene gret wear af aT& ATT avezTS,eee art afer dfaa ara? & afer @,a A ag aaa wien fe ae fralfedt at sma e atxqadtVI BL ad } aT wa F TET oda wea Bigt aT at af azoeafteat gat daa Gaz, 1922 (1922 wT 11)—art 2(6-%) (=) atte arr 12(1-@)—afe waz eeat waar sift ae gt, at se areart me eetwort FH ot gaat aM RH ey H dae aaa waeemt, fg ag aa wa fie we at wa ot at oadgiteay eR say WaE, 1922 (1922 ®t 13)—art,2(6-%)(&)site are12(1-e@)—ea gaaraart ase fafrs werar—ary gata at fied wayHoa at wt & far gine wi git at a, 3%fates meyer fafa wa 8 am ahi ARAAT TATA,[Fo][ MIT][ waa][ [ato][ Arafat]]469. qceae aerdt ara at fe tet aerdt a dy frat waaraaST FX an23-5 F aatenta feaaa a, feet uteat afr amar aT HF ea A ametfel at aera feat wTaT1vat daa sed) & afer wat & ofan ady ar!wat aN vat ag F Mae sfadad awe feat TT a| wasat % ara12(1-@) ® am ofer ara2(6-#)(F)Fgat. Ta AAA AAT aTwa A ag afer wT a WaTqrgata waadt ay & dha sfrded ae fear wyfrat fe ag waukifrar war at ag acite ct wg A fe alevat am set ad F sfaded wt fear wa a, wa WE OKat ad amar oat aifae|seater soreat we oiler omfafretfcr—sfoeragepq gaa Uae, 1922H 1955& faa afafrr ara,at1 aia,1955FY vad gat AT,ara 2(6-%) (5)GF grat aradegspywa ara gaa 12 aeaiic werenfia Tae, a at fe we oredfoar at% samt 2Fr aT108FH BER FH Wild TAT WITfet me 41(Tz 28)|mg sfeafar faq mt ara 3 fe aq YT Owqt act H arena fate, aoe afm ame F ae are fraweesamt ediacr ak fadea fear wat 2%,arrataetwazat arr108(1) & aela fafa & fea &1 are108e ae RAT FT Vayfeat ata wast mad are afa-fafaa <a fararen froed oe fix rat @ fH dara weal atam o& far a faefta wer2| fag afafoa atare 2 (6%) (€) Taree 12 aTeHe orfsarfeat era aratedafaarit avi facta areal ar sate A feat wet fege aco cs farare feet sored sare fafads vars 9atraet fFa F agarat afmaa er aq faa wa ¢ fearoa afaaartsaad ai, at aah arare afr ara edt &1 & art ae Hoag soareor aver fafacna or afer 2 aT fe fe 470Seaag marr frorr afaat[1978]3 Bx fro qo amt 2 (6) (5) % aafae madt seo at ae 2HT THR BAAdeT Caz SB aT 108 ¥ art FH ae seta sat@ fe ag uredta acardtoar ® qaraay H ofan aferTH HT FAT21 (HT 30)| atataae stare 12 (1-a) Fara afst art 2 (6%) (z)are qe Hera fat wr & va ang ar ait wa fH feetarma FT sae ary fag ot % fae at orasen wa freeeati (fr 31) elart 2 (6%) (),12 (1-@) a aro eqs aa aefara eat A te weet F vais wt at aE area et 2wf agt fara aa teal a wae ad a afrmatermate ata at ar ates aaaat aatfsr aca aTare featate aaren ot aaar ate @, gat7 fe Mt g eniefe ar sv fedea arr)r Fae wataar fares wesa Sawarareafaart deat ar fae area & grates feafera eq ater Sara amritfaa Fo saatadh 2 wedl fore aarc W faeaTaT BAT SF! (FA 35 A 36) farrtavsta faafaa wa & amt2 (6%) () aTwae12(1-@) Forweed BH sate at ace fara 2 A feaacat aa ios at smart (1)% aha worHF fer,TT walaat ard 71 wa 1955% faa afefaoe are arr2 (6%) (S)a12 (1-a) weenfta a wea Aaaaa at a cava fafeaa ea a ot fe araaaea ofufaa atart 108 4 weaface soar amt ti ze aF qaae daeTt aeofaad} ama fe agaaadeaofafon aare 108 (1) # feu we soar aT ae ae IX TEM AT OTTawe ae 108 (1) % ahaw. wer a-areg 2, ead daeeatwerdfrafedsaatat afafacefeat ar aie o@ -ar 12 8) saaret(1-a) 4 ‘orady’ ad & wa F aarface fearaT frrat are oe at fe ‘War aera fad art FH ag aneTa et fe ag arate @31 ard, 1956AY aaTa Za are HF fer, frater ay & gana qaadt ae A oq wT AAT AUT,nfe ter a saat afr ae BR gdadh ate sam fer AGuay aa Wat #1 Gdadh ay F arr Gs aera ‘Way wer Agafaa azar 2 fe ga ave aT am fear aT31 ATH, 1956al wart gt art frater ay am difaa gi weda aaa Faaa BT Ata31 ATS, 1956 HT aaTT sta are faatorag & ad 21 waa ae wea TT aT maT Gf faray fanfea ea a art sewvara wet H faa gate #er F 0a am ava sa afra aa H faragit waa vaam ar afar aa ® afere fer at ceee wet ot Prater agvata gata war qaadt 21 gateaa am % of waan aa fer aa wt Gaadt Toes gt ad FFH wT ara aques aat weara gf cart vas ae F ae aaa AT AHA2 fe ag amin 3, afe we ad wet cae sent aro ofaafaa arai at aq am farata @1 (FT 37)oenfta @ar 21 dfs felt or at wedaar Gadi at #gaat sifta maar siena git & arahac zg, zafaq aa gh are|arate oer ata@, ae ae Heed ero aie aeafae aTaTTtl waxaT AAMT WA ara ATA saAer Atal a alr areaa’ amas wafase attHh ate Hula wa veut git zg|afeart 2 mar (6%) staya (&) aA wat at ara ara 12 BA Te (1a) are FH aeaca Fratzg zalaq Ferdaaana ot fra aa waa HM FH wT A vadasite ent,Tog a aa wa fe wer me ge ate ar (TT 38) 788 (HFA):falase facta [1975]100 argo eto ato 788 (HFA): amare ws areal fafates gar wraHt (Walchand & Co. Ltd., Vs. The Commissio-ner of Income-tax, Bombay); 24 .1 fae gata aT at ome ga ae FH aT watedanwewearerataT, Eeef RT RRR+Gaz, 1922ateTt 12(1-@) ® ara qed art 2( 6-F) (s) matt,fett wet Aare Cat act a gt frat aaa,aT 23-8 F mateaia areata wa a ferwe 2,® are fretcet uta & er F feat smart at afia ATT AT F eqHaare wt arqat ara ofa afaa arat & ofan 7 a, Faz4 ag amar sam fe ag saat araia 3, ae Bt ae afireetwaa featFen wat GATT & fad qaadh fe ag ag F fator her war ar ar featFen wat GATT & fad qaadh fe ag ag F fator her war ar arFen wat GATT & fad qaadh fe ag ag F fator her war ar ar wat GATT & fad qaadh fe ag ag F fator her war ar ar GATT & fad qaadh fe ag ag F fator her war ar ar & fad qaadh fe ag ag F fator her war ar ar fad qaadh fe ag ag F fator her war ar ar qaadh fe ag ag F fator her war ar ar fe ag ag F fator her war ar ar ag ag F fator her war ar ar ag F fator her war ar ar F fator her war ar ar fator her war ar ar her war ar ar war ar ar ar ar arya aneana' aneana'' frat | etwaa featFen wat GATT & fad qaadh fe ag ag F fator her war ar ar featFen wat GATT & fad qaadh fe ag ag F fator her war ar arFen wat GATT & fad qaadh fe ag ag F fator her war ar ar wat GATT & fad qaadh fe ag ag F fator her war ar ar GATT & fad qaadh fe ag ag F fator her war ar ar & fad qaadh fe ag ag F fator her war ar ar fad qaadh fe ag ag F fator her war ar ar qaadh fe ag ag F fator her war ar ar fe ag ag F fator her war ar ar ag ag F fator her war ar ar ag F fator her war ar ar F fator her war ar ar fator her war ar ar her war ar ar war ar ar ar ar arya aneana' aneana'' frat | 2. Frater ao 1957-58 arat ag @ att Gaadh aah qT 1956 Fy Have ae 8) fraifedd dad sree(srgdz) fafetsat amare cat sare fateat aeret2) ae xtcFrat wat @ fis wert det aerdt.2 frat fe oaar. areaarrat wfafrr,1922 sf git o3n % agafata OTLATTera fgara. vat 81 Gaadl ad F sree FRaaa, woah at 1. In Navnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Co1n1nissivner !11co11ie-tax [1965] 1 SCR 909, this Court he1d that the combined effect of these two ·provisions is that three kinds of payments made to a shareholder of a company are treated as taxable dividend to the extent of the accumulated profits held by· the company, namely, payments made to the shareholder by \Vay of advance or Jo~·n. payments made on his behalf and payments made· for his individual benefit. The five conditions to he satisfied are : (i) The company n1ust be one in which the public are not substantially interested within the meaning of s. 23A; (ii) The bQrrower must be a shareholder at the date v.;hen the loa-n \Vas advanced; (iii) The loan advanced can be deemed to be dividend only to the extent of the accun1ulated pro'fit on the date of the Joan: (iv) The loan must not have been advanced by, the company in 1he ordinsiry course of its business and (v) The loan must have remained outstanding at the comn1encement of the shareholder's previous year in re!a ... tion to the assessment year 1955-56. [707 D-GJ In the instant case the con1pany was a controlled con1pany \Vithin the· meaning of s. 23A; the assessee was its shareholder; the company possessed "accumulated profits" in excess of the a•mount paid to the assessee during the previous years; and the company's business \Vas not money lending. 1'he· last condition was not applicable because it was a transitory provision ap_pli-cable to the assessment year 1955~56 only \Vhile the assessment yea<r in this. case was 1957-58. f708 Al 2. (a) The language of ss. 2(6A)(e) and 12(1B) is clear and un-ambiguous. There is no scope for importing into the statute \VOrds \Vhich are not there. Such importation would be not to construe it but to amend the statute. Even if there be ai casus 01nissus, the defect can be remedied only by legislation and not by judicial interpretation. [708 HJ (b) No justification to depart from the normal rule of construction according to which the intention of the legislature is prin1arily to be gathered F from the won.l:; used in the statute h~s been made out. (c) The Indian Legislature has deliberately omitted to use in ss. 2(6A) (e) and 12 (lB) words analogous to those in the last li1nb of s. 108( 1) of the Australian P..ct. When ss. 2(6A)(e) and 12(1B) \Vere inserted by Finance Act. 1955, Parliament must have been aware of the provision contained in s. 108 of the Australian Act. Jn spite of such awareness, Parliament has not thought it fit to borrow the whole hog what is sa.id in s. 108(1) so far as the last lin1b of that section is concerned. Our Parliament imported only a very restricted version, and incorporated the san1e as the 5th condition in s. 12(1B) to the effect, that the payment dee1ned as divi<lend shall be treated as dividend received by him in the previous year relevaont to the assessment yea·r ending on the 31st March, 1956 if such loan or advance remained out-standirtg on the last day of such previous year The word "such" prefixed to the previous year shows that t·he application of this clause is confined to the assessment year ending on 31st ~.farch, 1956. (709 C~D] In the instanl case the assessment year did not end on 31st March, 1956 lvhich showed th~t the Legislature has deliberately not made the subsistence of the loaQ or advance or its being outstanding on the last, date of the previous year relevant to the asse_ssment year, a pre-requisite for raising the statutory fiction. In other \Vords, even if the loan or ndvance cCased to be afeat a faatfedt # ard 4 65,246 rae aT rar afeare faerartqr, fad qaadt at & sacra feet TAT ~1 11 aaa alkl2qarat 1956% Sa fralfad taarana TK aera[Ya][ Cay]eat aT weaTexT fear at Ha faarsyt 4,97,442 eyg qadi¥\ gam at ave wae saiq 350,0000a Tar 40,400 Waa gt 11 saad, 1966 at faatfedt are ae at Te aT saa% 65,246 eta Sr wiefeay afaaTcat at wer Ae matt40,000 8a a fR saw seaaa ga F 31 fearat, 19554difea gota araia 2, aie sam sar F safer FX fey TW& agr wgtdt A ude F & sat sat F afafeat19,493aug St aa TAT Heat Tat at fra ae12 ATHIZ, 1956ay feafa ae at fe aradt at afeat 4 fagifedt * az ata2,72,703, wa Ft fs Me Ww TE A 29 fearat, 1956 atfratfedt X HFTAT at 1,90,000wa @t Uist FT sfaara far |31 fearaz, 195641 Jaa Mat Ga dat gaal gett at weraaa Ft aTaa 80,000VIF Hl UH weg UT FA afeatad FXfeat wat ate ata af art wrsnta F Ale TT 29,326 waa atafatesa ute ot arfna ae aft we) ca Mae Gaalae F Fea& qd, fafaifedt ar Fat 2,99,326 wa.at AaleTa uf[&][ are]aur atg a era fear war ot fe 12 aarax, 1956BT TaTAT272,703a * AZ qt FW gfaay & afae saat at eagare frafeal arr seat at gama Gaadh ae Raed F ateafan oa wraT wT Mes vet AT||a| og. rare afearat F ag Prose frarat fe1 TAA,1956 wlfeafa ag at fe ara & afer ay 683,005waa aad1 sahre sedit Galat ata wat at Wal] 1,40,000aveqat19,493 wa at gat frarex 1,59,493 wae aad§ fraifedt at aveer H dat wat Rael ae ATE aA2,72,703 ea ¥ afray at qra2 (6%) (s) ¥ wateditaPrathedt at ear arate are aah AAT TAT| WAHT afararex grat 16 (2) Roma ca eH at aafwe wT feat ATCsq gta ® watart fraifedt at ach fae wen at gesa AKAAT WAT To WAHT Alara [Ato ararfeat]475|4. afe aga ada watF ane fratfedtarr aTg ada wane wt safer sat ati aac ata afarmarretHamat ada vege ati afer F aceals MA waqs aT| ae3% ag afeeatr satay fe fa gt ate actaHTara AST2(6) QreT (&) HC % Mar ofeefeaa F ate gaere frifedl dae Pearsl Tat wat giara 2 ae arate aawat arfee aie amard gra at wesearaadh saat wzTATsfrarr sa ga gaara at afcA & afega veh He HTT ZIzafar seit ae afatiaifed featfe 2,72,703wa at cafegta 2 (en) (S) ¥ welt areata F wT FT aoez ath 5. waif weer F aenfanar Ha oat Rar) sam afteadatrm % gaua cat frat qdadt sat ag sa ® ad cron F aad fraifet HA fear at ga a Aaa am atme danat yaad ad ¥® ates wate arevafaatF at Ht staed ati “afe ag oar sate? fe aaft amare & gaatae & aaa F chert aradt & afee sa geet aT FH ateTl wa at at feed vat sa sa ytadi ay at amare caaeraal ama we feara, at Fat ae Fel TT AaaeSfe va qaadt ad ® aa A award al ga are al GTAHt aT 23-0 araal F a feast fe ae aaarel at, stgafr gt ata aT va aA gahwart % faq fearswet at, oft fe saat Fa are at aaoat Ffae gett atsqdadt ag at mecca srarafaal F choa far a afwa satAT Fert BT at Star Ara Heat slat” ze arate Te alasqaq % ag frond faaat fe -2,72,703wa attifa freerTHA ST 3,19,245 eatead ® meat aaa alat_e|l Tat a, wfafaryat are 2(6-%) (S) 6. adda ® aren, afer at wearer a faeafafadteafafase fat wat at —— “aot gq aTtal & aeat ate ofefeafaal at araHF wart ea 2,72,703et Bt Ts Ula, (alana BT25 M of Law/78—4 476 «|% 319,245weaarate et aad fata &) afaret FW at= [1978] FH are 3 2 (oF)THefo (Fe) Mo > gatafraifetatoraarateattartarea| 7, meme F Mars waa Hara aenfa aad Fi aleag afaftaifea frat fa ‘fret otede seri Fo steal aremet are gt AAAT ET ATATT at waft atc Ht wat ¢mre ae are 2 (Ge) (F) set Aes Heal HF rae TC AMAat war 2 ate weet seater B fre aieea adh XE MATZ,qraife fratfet cer aaa fafa at git & aera at eatyfrat vex R arfeeardra gir afe fralfedt aereara eTat afar we tarottart sfaare ata Ft Arata AATgaatgfarere weldt attr vat 12 (3) Sta % ait wala Tet F wade Maa welt gt zat & STH et aaife AAT cataét 3)" SA arate TC Tel FA Wet BT TAC THTBTa fear outstanding at the end of the previous year, it could still be deemed as divi-dend if the other four conditions factually existed to the extent of -the accumu-lated profits possessed by the company. (709 E·Fl (.d) Under s. 3 which is the charging section, the previo~~ year. is the unit of tiine on which the assessment is based. As the taxab1hty of income is related to its receipt or accrual -in the previous year, the mom~nt dividend is received whether actual or deemed, income taxable under the residuary head, "income from oth~r sources", arises. The charge being on accrual or rec~ipt. the statutory fiction created by ss. 2(6A)(e) and s. 12(1B) would c~me mto operation at the time of payment by \vay of advance or loan prov1Jed the other conditions are satisfied. [709 G-H] CIVIL APPELLATE JURISDICTION: c. A. No. 147 of 1972. (Appeal by Special Leave from the Judgment a~d Order dated 19.2.1971 of the Calcutta High Court in Income Tax Ref. No. 98/67) G. C. Shanna, D. N. Mukherjee, A. K. Ganguly and G. S. Chatter-iee, for the appellants. B. B. Ahuja and R. N. Sachthey, for respondent. G. C. Shanna, D. K. Jain, A11111> Sharma, S. P. Nayar and.Miss K. Jaiswal for the Intervener. The Judgment of the Court was 'delivered by SARKARIA J. Whether any payment by a Company, not being a Company in which the public are subsantially interested within the meaning of s. 23A, of any sum by way of advance or loan to a share-holder, not exceeding the accumulated profits possessed by the Com-pany, is to be deemed as his dividend under Section 2(6A) (e) read with Section)2(1B) of the Income~tax Act, 1922, even if that advance or loan is subsequently repaid in its entirely during the relevant pre-v>'ous year in which it was taken, is the only question that falls to be determined in thls appeal by special leave. The assessment year is 1957-58, and the corresponding previous year is 'the calendar year 1956. The assessee is a shareholder and the Managing Director of M/s. Dolaguri Tea Co. (P) Ltd. The Company is admittedly one in which the public are not substantially interesteJ within the meaning of s. 23A of the Indian Income-tax Act, 1922 (for short, the Act). At the commencement of the previous year, there was in the books of the Company a credit balance of Rs. 65,246/- in the assessee's account, which had been brought for-ward from the earlier year. Between the 11th January and the 12\h November, 1956, the assesscc withdrew in cash from time to time from the Company, amounts, aggregating Rs. 4,97,442/-. The first two cash amounts of Rs. 3,50,000/- and Rs. 40,400/-, were '.aken by the assessee on 11.1.1966. Deducting therefrom the open-ing balance of Rs. 65,246/-and two more items, namely, Rs. 1,40,000/- being outstanding dividends declared on 31.12.1955 of his major son, and transferred ·to his account, and a further dividend of Rs. 19,493/- credited to his account from Kathoni Tea ·Estate, there remained a sum of Rs. 2,72,7°'3/- to the debit of the nssessce 700 SUPREME COURT REPORTS 8. agaa at ta F aqarcafaren a fratfedt at ateait ax a fag gaat stor ox sa set alafefaaraTares (1)B welt Sea earaterey aret Tes fag ata & fry fafaseHe feat|: 9. aq alata F ge afafaaifrrfeat fe et vafafase ata Te ATT gla F Ma PH Vat AT AMG ge sareeq F faar war a ale ae aeeagt at 2 fe ata aTsfaart wat ag * get A ga gaat aearata feat wat aT|aa afar B arate ae GaN get BT TaT Uaea fray Fa% aat fratfeat % fara fear 10. wa: faatfedd 4 ag ata atsi od,fart cetteoe age at TE Foe aT Tal HAAgd ag maraeo fe afefrad at amare aT cat sat gata aati Seaeelt at ofeatera ae ftar ae 1 afarae atare 2 (6-7) (=) 9(em). “araim’ F aeTtafarafafad@-—(=)& (4)...Laevee (=) feat wert are at Cat Hr Al[es]frat ataT are 234n H aatada wear STFfare2%, feet dat orem at ateat TE TM aft feet dat orem at ateat TE TM aft dat orem at ateat TE TM aft orem at ateat TE TM aft at ateat TE TM aft ateat TE TM aftat TE TM aft TE TM aft TM aft aft 2%, feet dat orem at ateat TE TM aft feet dat orem at ateat TE TM aft dat orem at ateat TE TM aft orem at ateat TE TM aft at ateat TE TM aft ateat TE TM aftat TE TM aft TE TM aft TM aft aft (ae ae Feat aT aiferat & fet art eTai ar aeqat fret afr waaT ET FH KT yaaafeat sat at at aTeaT aaa at frat pert gtfret dat are a ate & at san aafera waefrayfac at sa car ater Xt afar ag frat art vat wat at fae at ae ferent freq aan % ania freafafad zat e-— (i) wat sae ar ates TfeeATT at feat % aftea aeadt.% feat aev wet F faremart aval 8, qt aaa afrwt F faq sre fee ‘aa Hag we aT e— “2(6A) “dividend” includes— veee (e) any payment by a company,notbeingacompany in which the public are substantially inte-rested within the meaning of Section 23-A, of any sum(whether as representing a part of the assets of the com-pany or otherwise) by way of advance or loan to ashareholderor any payment by any such companyholder, to the extent to which the company in eithercase possesses accumulated profits;on behalf or for the individual benefit of a share- but “dividend” does not include— (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any shareissued for full cash consideration where theholder of 478 0 Seaaa sata facia afaet © [1978] 3ato Fito qo 1 faetsie atarat sqavs (1) ay sqave (q) w aqare fear wat are fac;| TET(ii) aa areare® are wa F ft aT feet tacaresy gt fear vat até afra- waa at Batt, Tat aa vare Far va weal FTATE BEAST ATT Fj (iii) feat Sent are dea atE dar arate faeat gat ara cat at deat peat aept cfa gat feat arfe seat ret ase Peatmtgatt wt sqave (=)F ad F aria FB—8T A arar wat 3, ga cian aa fra an caatST TST AAT feat TaT F1 —«earseact—eq qs H set sal at “Afraa Fe ara Fae wa ae Ta gat ahaart wet St TT 1946 F ata & som fardFtat 1948FH artF 31d fea B® eaeaie1956 % ait ® saa fer F ge sega a” the share is not entitled in the event of liquidation toparticipate in the surplus assets; a(ii) any advance or loan made to a Shareholder by_ company in the ordinary course of its business wherethe lending of money is a substantial part of the busi-ness of the company;. * .(iii) any dividend paid by a company which is setoff by the Company against the whole or any part ofany sum previously paid by it and treated asa dividendwith in the meaning of clause (c), to the extent towhichit is soset off;|; Explanation—The.expression— “accumulatedIncludeprofits”, wherevérit occurs in this clause, shall not1946, capital gains arising before the Ist day of April,- or after the 31st day of March, 1948, and beforethe Ist day of April, 1956”. 12. seared (15) F ga we’ aufero se TaHTT aTTw.¢fevet“sy afafun Ftafkefaa <ifaa anfiaara 4 at even (1) F faface aa, wal ate afar at Hetwan” afara 21oO 13. aT 3 areT aa (ae Fame) Fi sa are Famt a fara vor ala g, F ee wart F:-- “(1) fe ax ar vauan ua fratfea cara ai Famre ot feat oat Z| 700 in the books of the Company as on the 12th November, 1956. On December 29, 1956, the assessee paid back to the Company a sum of Rs. 1,90,000/-. On December 31, 1956, his account was credited with another sum of Rs. 80,000/- in respect of the dividend due to him and his wife, and with a further sum of Rs. 29,326/- for liypo-tecation. In this manner before the end of the previous year, the asscssee'& :tccount was credited with an aggregated amount oi Rs. 2,99,326/- which exceeded the debit balance of Rs. 2,72,703/- as on November 12, 1956. Thus at the end of the relevant previous · year, no advance or loan was due to the Company by the assessee. The Income-tax Officer found that the accumulated profits of the Company as on January 1, 1956, amounted to Rs. 6,83,005. He, therefore, deducted the two aforesaid items of Rs. 1,40,000/- and Rs. 19,493/-, aggregating Rs. 1,59,493/-, from the amount paid in cash to the assessee and treated the balance of Rs. 2,72,703/- as as the net 'dividend' income in the hands of the assessee within the meaning of Section 2 ( 6A)( e). The Income-tax 6A)( e). The Income-tax e). The Income-tax Officer grossed grossed up that amount under Section 16(2) and gave credit for tax in accordance with that Section to the assessee. Company as on January 1, 1956, amounted to Rs. 6,83,005. He, therefore, deducted the two aforesaid items of Rs. 1,40,000/- and .c Rs. 19,493/-, aggregating Rs. 1,59,493/-, from the amount paid in cash to the assessee and treated the balance of Rs. 2,72,703/- as as the net 'dividend' income in the hands of the assessee within the meaning of Section 2 ( 6A)( e). The Income-tax 6A)( e). The Income-tax e). The Income-tax Officer grossed grossed up that amount under Section 16(2) and gave credit for tax in accordance with that Section to the assessee. D The asscssee's appeal to the Appellate Assistant Commissioner having failed, he preferred a further appeal to the Income-tax Appel-late Tribunal. There was a divergence of opinion between the Mem-bers of the Tribunal. The Accountant Member took the view that the moment a payment is made as envisaged in Section 2 ( 6A) ( e) it be-comes clothed with the character-of a dividend and has to be treated as such income of the assessee, and no subsequent action or repayment "E · by the share-holder can take it out of the mischief of this provision. He therefore held that the sum of Rs. 2,72,703/-was taxable ns dividend under Section 2 ( 6A)( e). · • The Judicial Member expressed a contrary opinion. In his view, the total income of the assessec during the relevant previous year could be computed and assessed only at the end of that year; it could not be computed at interim periods during the previous year. "If it is found that although the shareholder had taken by way of advance or loan an amount from the Company during the course of a previous year but. had returned the same to the Company before the close of that pre-vious year, it can only be said while computing the shareholder's total income at the end of that previous year that no advance or loan from the 23A Company of which he was a shareholder stood for his benefit at the time relevant for computation of his total income. The advances or loans taken during the interim periods of the previous year would just have to be ignored." On these premises, the Judicial Member crune to the conclusion that the sum of Rs. 2, 72, 703 /- grossed up to Rs. 3,19,245/-, was not a dividend within the fiction under Section 2(6A)(e) of the Act. On account of this difference of opinion, the following question \vas referred to ·the President of the Tribunal : "Whether on the facts and in the circumstances of the case, the sum of Rs. 2,72,703/- net (Rs. 3,19,245/- gross) is to be treated as dividend income in the hands of the asses-see within the meaning of Section 2 ( 6A)( e) ?"