2015 (4) TMI 637 - HC - Income Tax

Deemed dividend under Section 2(22)(e) - money received by a company, on account of the share premium - Held that - In the case before us the provisions contained in Section 78 of the Companies Act, 1956 are applicable. It is interesting to note that it was not also the case of the revenue that from out of the moneys received on account of share premium dividend was declared as was done in the case of Bharat Fire And General Insurance (1964 (4) TMI 44 - SUPREME COURT OF INDIA). Income Tax Appellate Tribunal was justified in law in deleting the addition made by the Assessing Officer under Section 2(22)(e) of the Income Tax Act, 1961. For the aforesaid reasons the question formulated at the time of admission of the appeal is answered in the affirmative and against the revenue.

Summary

Issues:
- Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deletion of addition made by the Assessing Officer under the said section for the Assessment Year 2001-02.

Analysis:
The High Court of Calcutta was tasked with determining whether the Income Tax Appellate Tribunal was correct in law in deleting the addition made by the Assessing Officer under Section 2(22)(e) of the Income Tax Act, 1961 for the Assessment Year 2001-02. Section 2(22)(e) pertains to payments made by a company to a shareholder, and it requires the presence of accumulated profits within the company for a payment to be considered as dividend under this provision. In this case, the revenue did not claim that there were accumulated profits in the company but argued that a reserve created from the share premium existed. The appellant contended that Section 2(22)(e) should be applied to any advance or loan made by the company based on this reserve. However, the court noted that the Companies Act, 1956 specifically outlines the treatment of money received from share premium in Section 78, and it was not established that dividend was declared from the share premium as in a previous case cited by the appellant.

The appellant relied on a judgment of the Apex Court in a different case, Bharat Fire And General Insurance Ltd. v. C.I.T, New Delhi, to support their argument. However, the court found that the facts and circumstances of that case were distinct, as it involved the declaration of dividend from a reserve created out of share premium under the Companies Act of 1913, which was permissible at that time but not under the 1956 Act. The court emphasized that the provisions of the Companies Act, 1956 were applicable in the present case, and the revenue did not demonstrate that dividend was declared from the share premium. Therefore, the court concluded that the judgment cited by the appellant was not relevant to the current scenario.

In light of the arguments presented and the legal provisions applicable, the court answered the question formulated at the time of admission of the appeal in the affirmative, ruling against the revenue. Consequently, the appeal was dismissed, affirming the decision of the Income Tax Appellate Tribunal to delete the addition made by the Assessing Officer under Section 2(22)(e) for the Assessment Year 2001-02.