COMMISSIONER OF INCOME TAX Vs. SHANKARAN G

JUDGEMENT

(1.) THE Tribunal, Madras Bench, under S. 66(1) of the Indian IT Act, 1922, has referred the following question of law for the opinion of this Court :

(2.) 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. Thus, by December 5, 1960, the assessee had taken an advance of Rs. 35,260. The previous year of the assessee for the asst. year 1961 - 62 was from April 1, 1960, to March 31, 1961. The ITO sought to assess this particular sum of Rs. 35,260 as dividend in the hands of the assessee under the provisions of S. 2(6A)(e) of the Indian IT Act, 1922. Overruling the objections of the assessee, the officer made the assessment and, on appeal preferred by the assessee, the AAC 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 Tribunal, the Tribunal agreed with the conclusion of the AAC and dismissed the appeal. It is the correctness of this conclusion that is challenged in the form of a reference brought to this Court. Sec. 2(6A)(e) of the Indian IT Act, 1922, reads as follows :

(3.) THIS contention advanced by the Department before the Tribunal is directly opposed to the conclusion of this Court, as to what constitutes accumulated profits, reached in CIT vs. M. V. Murugappan (1966) 62 ITR 382 (Mad). In this case, a Bench of this Court with specific reference to s. 2(6A)(c) of the Indian IT Act, 1922, actually pointed out that accumulated profits will mean only the profits which have been gathered or heaped up or stored up to the end of the previous year and it will not take in the current profits of the year during which the distribution or payment has been made. This view of this Court has been affirmed by the Supreme Court in CIT vs. M. V. Murugappan )1970) 77 ITR 818 (SC). Consequently, the expression "accumulated profits" certainly cannot take in the current profits even assuming that the income -tax refund of Rs. 52,506 can be taken to be profits of the company when it received them. Under them circumstances, we are of the opinion that the conclusion of the AAC and, affirmed as it is by the Tribunal, is correct in law and, therefore, we answer the question referred to us in the affirmative and in favour of the assessee. The assessee will be entitled to the costs of this reference. Counsel's fee is Rs. 500.