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Interpretation of Section 2(6A)(e) of the Indian Income-tax Act, 1922 regarding the inclusion of a sum of Rs. 35,260 as dividends in the income of the assessee. Analysis: The judgment delivered by the High Court of Madras pertained to the interpretation of Section 2(6A)(e) of the Indian Income-tax Act, 1922, regarding the treatment of a sum of Rs. 35,260 as dividends in the income of the assessee. The Income-tax Appellate Tribunal had referred the question of law to the court, questioning whether the sum in question should be included as dividends under the specified section. The assessee, a shareholder of a company, had taken an advance of Rs. 35,260 from the company, and the Income-tax Officer sought to assess this amount as dividends in the hands of the assessee. The Appellate Assistant Commissioner had deleted this amount from the assessment, a decision upheld by the Income-tax Appellate Tribunal, leading to the reference to the High Court for a final decision. The crux of the matter revolved around the applicability of Section 2(6A)(e), which includes any payment by a company to a shareholder as dividends, provided the company possesses accumulated profits at the time of the payment. The company in question was not substantially owned by the public, meeting one criterion for the section to apply. The key dispute was whether the company had accumulated profits when the advance was given to the shareholder. The department argued that income-tax refunds received by the company during the relevant period should be considered as accumulated profits. However, both the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal rejected this argument, emphasizing that profits cannot be deemed until accounts are closed, and accumulated profits refer to profits gathered until the end of the previous year. The court referenced previous judgments, including Commissioner of Income-tax v. M. V. Murugappan, to support the interpretation that accumulated profits do not include current profits of the year in which the payment is made. The court concluded that the department's argument was contrary to established legal principles and affirmed the decisions of the lower authorities. Therefore, the court answered the question in favor of the assessee, ruling that the sum of Rs. 35,260 was not includible as dividends in the income of the assessee. The assessee was awarded costs for the reference, including counsel's fee.
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