COMMISSIONER OF INCOME TAX-II Vs. G SHANKARAN

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922, has referred the following question of law for the opinion of this court :"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 35, 260 was not includible in the income of the assessee as dividends under section 2(6A)(e) of the Indian Income-tax Act, 1922 ?" *THE matter lies within a very narrow compass. THE assessee is a shareholder of Trichy Mining Works Ltd. According to the entries in the current account of the company there were debts against the assessee of Rs. 18, 864 by October 26, 1960, and further debts totalling Rs. 16, 396 from October 31, 1960, to December 5, 1960, so that the total of the debts came to Rs. 35, 260.

(2.) THUS, by December 5, 1960, the assessee had taken an advance of Rs. 35, 260. The previous year of the assessee for the assessment year 1961-62 was from April 1, 1960, to March 31, 1961. The Income-tax Officer sought to assess this particular sum of Rs. 35, 260 as dividend in the hands of the assessee under the provisions of section 2(6A)(e) of the Indian Income-tax Act, 1922. Overruling the objections of the assessee, the officer made the assessment and, on appeal preferred by the assessee, the Appellate Assistant Commissioner deleted this amount holding that the same cannot be considered to be dividend under the provisions referred to above. When the department preferred a further appeal to the Income-tax Appellate Tribunal, the Tribunal greed with the conclusion of the Appellate Assistant Commissioner and dismissed the appeal. It is the correctness of this conclusion that is challenged in the form of a reference brought to this court.Section 2(6A)(e) of the Indian Income-tax Act, 1922, reads as follows :"(6A) 'dividend' includes - ......(e) any payment by a company, not being a company, in which the public are substantially interested within the meaning of section 23A, 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 or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits." *For attracting this section, (i) there must be a loan or advance to the shareholder by the company (ii) on the date of such loan, the company must possess accumulated profits and (iii) to the extent of the accumulated profits, the loan will be treated as dividend in the hands of the shareholder. It is not in dispute that the company in question is a company in which the public are not substantially interest.