COMMISSIONER OF INCOME TAX Vs. SIVASUBRAMANIAM V S

JUDGEMENT

(1.) AS per the direction of this Court, dt. 22nd June, 1981, the Tribunal referred the following three questions for the asst. yr. 1960-61, for the opinion of this Court under s. 256(2) of the IT Act, 1961 :

(2.) THE assessee is an individual, who is a shareholder in the company of Sivasubramaniam (P) Ltd., Tirupur. THE company was incorporated on 5th December, 1950, with six shareholders. THE assessee is one of the shareholder. THEy were also directors. THE company was having the business of running a knitting factory, which was closed in the asst. yr. 1959-60 and the machineries were also sold in the asst. yr. 1960-61. THEreafter the company was advancing its capital as loan and thus carried on moneylending business. In the asst. yrs. 1958-59 and 1959-60 assessments were made, treating the interest received in respect of the advances as business income. In the asst. yrs. 1960-61 to 1963-64 also it was recorded that the business of the company included moneylending business. During the previous year ended 31st December, 1959, the assessee had taken a loan of Rs. 95,570. THEre was an accumulated profit in the company's account to the extent of Rs. 52,617. THE assessee contended that the loan to the extent of Rs. 52,617 should be treated as attributable to accumulated profit, and, therefore, it is a loan advanced to the assessee on which the assessee claimed that it would not amount to dividend as per the provisions contained in s. 2(6A)(e)(iii) of the Indian IT Act, 1922 (hereinafter referred to as the Act). However the ITO deemed it to be dividend under s. 2(6A)(e) of the Act. According to the assessee, the sum of Rs. 52,617 cannot be deemed to be the dividend, but it should be considered as a loan advanced out of the accumulated profit. On appeal, the AAC confirmed the view taken by the ITO, holding that the sum of Rs. 52,617 advanced to the assessee should be deemed to be dividend income. Aggrieved, the assessee went in appeal before the Tribunal. THE Tribunal, considering the facts that during the assessment year under consideration that the company was doing only the moneylending business and it had accumulated profit, and therefore, the sum of Rs. 52,617 advanced to the assessee should be treated as a loan as contemplated under s. 2(6A)(e)(iii) of the Act.