1978 (7) TMI 166 - AT - Income Tax

Summary

Issues:
1. Whether the advance received by the assessee from the company should be treated as deemed dividend under s. 2(6A)(e) of the Indian IT Act, 1922.
2. Whether the company was carrying on money-lending business, and if the assessee is entitled to the benefit of s. 2(6-A)(e) based on this.

Detailed Analysis:
Issue 1:
The case involved the assessee, a shareholder in M/s. Sivasubramaniam Pvt. Ltd., where the company had advanced a sum to the assessee, treated as an advance received. The Income Tax Officer (ITO) treated it as a loan, leading to the inclusion of a specific amount as deemed dividend. The Appellate Assistant Commissioner (AAC) initially ruled in favor of the assessee, but the Tribunal set aside the order, directing a reevaluation of the company's business nature and the specific advances made. The AAC, in a subsequent order, dismissed the appeal, leading to the current appeal.

Issue 2:
The main contention was whether M/s. Sivasubramaniam Pvt. Ltd. was engaged in money-lending business, which would exempt the advance made to the assessee from being considered as deemed dividend. The assessee presented evidence of interest receipts by the company during various assessment years, indicating a money-lending aspect to its operations. The company's business nature was further supported by the assessment orders and resolutions presented. The Revenue argued against the inclusion of the advance, citing the company's liquidation and subsequent assessments. However, the Tribunal found sufficient evidence to support that the company indeed conducted money-lending activities, leading to the allowance of the appeal and setting aside the inclusion of the sum as deemed dividend under the IT Act, 1922.

In conclusion, the Tribunal allowed the appeal, determining that the company was engaged in money-lending business, thus entitling the assessee to the benefit of s. 2(6-A)(e) and setting aside the inclusion of the sum as deemed dividend.