(1.) THE following question has been referred to this court for its opinion by the Income-tax Appellate Tribunal at the instant of the Revenue.
(2.) THE assessee, Miss P. Sarada, is a substantial shareholder in M/s. Universal Radiators P. Ltd. While completing the assessment for the years 1973-74, the ITO found that the assessee had withdrawn a sum of Rs. 93,027 from the above concern during the relevant accounting years over and above the credit she had with the said concern. This excess withdrawal was treated by the ITO as dividends under s. 2(22)(e) of the I.T. Act on two grounds.
(3.) ON a due consideration of the matter, we are not in a position to agree with the view taken by the Tribunal in this case. Even, according to the Tribunal, the amount due by Mahesh to the assessee was only a sum of Rs. 70,000 as the accounts of Mahesh with the company as on March 31, 1972, indicate that the had to pay the assessee a sum of Rs. 70,000. In the accounts of the assessee with the company as on April 1, 1972, there is a reference to a loan of Rs. 1,00,000 less Rs. 30,000, i.e., Rs. 70,000, owing by Mahesh to the assessee during the relevant year. So the entries in the accounts of Mahesh and the assessee clearly made out that on April 1, 1972, Mahesh owed a sum of Rs. 70,000 to the assessee. Even assuming that Mahesh had to pay the sum of Rs. 70,000 to the assessee as on April 1, 1972, it is could be said to have been repaid only if his account is debited and the assessee's account is credited to that extent. But the such an event took place only on March 31, 1973, on the last day of the accounting year. Even assuming that the letter dated April 3, 1972, is genuine, as has been held by the Tribunal, in view of the fact that the assessing authority did not doubt its genuineness, sum of Rs. 70,000 only can be withdrawn by the from her accounts. The letter dated April 3, 1972, does, however, authorise the assessee to withdraw from the account of Mahesh a sum of Rs. 1,00,000. But, the excess withdrawal was to the extent of Rs. 93,027 and the same is not limited to Rs. 70,000. From this it appears that the excess withdrawals by the assessee on various dates were without reference to the quantum of the amount due by Mahesh. Even with regard to Rs. 70,000 said to be due by Mahesh to the assessee, till the assessee takes advantage of that letter and gets a credit for the amount mentioned in that letter in her accounts, her withdrawals cannot be said to relate to the amounts which came to be credited in the assessee's account long afterwards. It has been held held by the Supreme Court in Tarulata Shyam v. CIT , that the statutory fiction under s. 2(6A)(e) of the Act would come into operation at the time of the payment of the advance or loan to a shareholder by a company in which the public are not substantially interested and tax is attracted to the loan or advance to the extent to which the company possesses accumulated profits moment the loan or advance is received and that even if the loan or advance ceases to be outstanding at the end of the previous year in which the loan or advance was taken, it can still be deemed to be "dividend" if the conditions of s. 2(6A)(e) are satisfied. At the time when the excess withdrawals were made by the assessee, the amounts said to be due to Mahesh to the assess had not been credited in her account and it a came to be credited only on March 31, 1973, at the end of the previous year. Even assuming the letter to be genuine as held by the Tribunal, so along as the letter has not been given effect to by making debit entries in the accounts of Mahesh, the amount referred to in that letter had remained to the credit of Mahesh. As already stated the entries in the books of account maintained by the company till March 31, 1973, show that the assessee has overdrawn from the company's fund and that the company had sufficient accumulated profits. It is only on March 31, 1973, the account of Mahesh was debited and credit was given to the assessee for the amounts directed to the transferred. The assessee should, therefore, be be taken to have got credit for the amount due by Mahesh only on March 31, 1973, and this means that she has adjusted the excess withdrawals by a credit on March 31, 1973. As pointed out by the Supreme Court, the mere fact that the loan or advance made by the shareholder has been repaid before the close of the accounting year will not indicate the on the date of the withdrawal, it was not a loan or advance by the company. In any event, even according to the Tribunal, the direction given in the letter dated April 3, 1972, is only for repayment of the sum of Rs. 70,000 due by Mahesh to the assessee and there is on explanation as to why Mahesh should provide the facility for the assessee to withdraw more than the said sum of Rs. 70,000. We are, therefore, of the view that the letter dated April 3, 1972, even if is taken be genuine, will not enable the assessee to claim that her excess withdrawals were from and out of the credit available to Mahesh. The finding to the Tribunal to the contrary will in this case appears to be not only unreasonable but also perverse. Even if Mahesh has authorised the company to pay Rs. 1,00,000 to the assessee out of the amount standing to the his credit with the company, so long as the amount is not transferred to the credit of the assessee and such a credit having been given only on March 13, 1973, the said amount of Rs. 1,00,000 cannot be said to have been made available to the assessee on the various dates when the excess withdrawals we made by her. As already pointed out, the relevant date is the date of the loan or advance and in this case on the dated of the excess withdrawals, there was on amount to the credit of the assessee and no amount had also been transferred to her credit from Mahesh's account. The fact that the company had credited the amount in the assessee's account only on March 31, 1973, leads to the inference that the latter by Madhavan on behalf of the minor Mahesh authorising a debit of his acount and credit to the assessee's account would have been given only on March 31, 1973, and not before.