9911796707
TMI Blog1997 (9) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserves including provisions made for the assessment year 3,00,000 Surplus in the profit and loss account 19,865 Proposed dividends 48,480 Total 3,68,345. For the assessment year 1962-63, a sum of ₹ 1,95,550 was assessed in the hands of her husband as deemed dividend by invoking the provisions of section 2(22)(e) of the Income-tax Act. Deducting this amount of ₹ 1,95,550 from the reserves of ₹ 3,68,345 the balance of ₹ 1,72,795 was treated as deemed dividend and brought to tax in the hands of the assessee for the assessment year 1962-63. The releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(22)(e) of the Income-tax Act, 1961, there must be actual flow of cash from the company to the shareholder and the transfer of money from the account of her husband to her account did not amount to a payment as envisaged in that section ? For understanding the scope of section 2(22)(e) the relevant portion of the section may be extracted : 2(22) 'dividend' includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her shares in the company. Her son also undertook the liability of his mother to the company and made himself indebted to the company for the amount of principal and interest due by her. Under these circumstances, under the earlier Act identical provisions of law were applied and the loan was treated as a dividend income and brought to tax. The Division Bench on the above facts held as follows (page 292) : It is urged on behalf of the assessees that the loans were advanced by the companies only to Visalakshi Achi and that there was no payment 'by the companies to the assessees,' and that section 12(1B) is, therefore, inapplicable. It is not disputed-and indeed it cannot be disputed-that had Visalakshi Achi been alive in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e where the assessee family held 3,300 partly paid up shares in a private limited company. In the year ended on December 31, 1956, a sum of ₹ 1,50,202 was debited to the profit and loss account and credited to the development rebate reserve account. Similarly, for the year ended on December 31, 1957, also a similar exercise was undertaken. In the assessment years 1957-58 and 1958-59, the development rebate reserve amounted to ₹ 3,58,212. After eliminating the opening debit balance and the interest amount, the advances received by the assessee-family during the year amounted to ₹ 7,111.52. The Income-tax Officer considered this amount as dividend under section 2(6A)(e), as according to him, the company had accumulated profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a loan. We are, therefore, of the view that the sum of ₹ 1,65,000 cannot be treated as payment by way of loan by the company to the assessee-family and that, therefore, section 2(6A)(e) could not be invoked. The facts of the present case are closer, to the facts of the case in G.R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13 (Mad) and we are, therefore, inclined to follow the observation of the Division Bench mentioned above. That apart, the provision of law, namely, section 2(22)(e ), which we have already extracted above, says that by a fiction dividend is made to include any payment by a company, etc. Therefore, it is difficult for us to introduce another fiction in respect of the words payment by the company by constr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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