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Issues involved: Interpretation of section 2(22)(e) of the Income-tax Act regarding deemed dividend, treatment of transfer of money between accounts as payment, and application of legal precedents.
Summary: The judgment addressed the issue of whether a transfer of money between accounts could be treated as payment under section 2(22)(e) of the Income-tax Act, involving a shareholder in a private limited company. The court considered the provisions of the Act and relevant legal precedents to determine the applicability of deemed dividend in this case. The court analyzed the provisions of section 2(22)(e) which define dividend to include payments by a company to a shareholder, and the requirement of actual flow of cash for such payments. It compared different interpretations of the section and legal precedents to ascertain the correct application in the present case. Referring to the case law of G. R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13 and T. Sundaram Chettiar v. CIT [1963] 49 ITR 287, the court examined scenarios where loans from a company to a shareholder were treated as dividend income. It emphasized the jural relationship of debtor and creditor between the shareholder and the company as a key factor in determining deemed dividend. Based on the analysis of legal principles and precedents, the court concluded that the transfer of money between accounts did not constitute a payment under section 2(22)(e) as it did not involve an actual flow of cash. It highlighted the importance of adhering to the statutory provisions without introducing additional fictions in the interpretation of deemed dividend. Ultimately, the court ruled in favor of the assessee, holding that the transfer entry between accounts did not amount to a payment as envisaged in section 2(22)(e) of the Income-tax Act. The judgment aligned with the decision in G. R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13, emphasizing the statutory framework and rejecting the notion of constructive payment in this context.
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