COMMISSIONER OF INCOME TAX Vs. NAGINDAS M KAPADIA

JUDGEMENT

(1.) THE only question of law referred to us at the instance of the Department in this reference reads thus :

(2.) IT is common ground that the assessee is a shareholder in the company styled as Maganlal Chhaganlal (P) Ltd. and "is a person who has substantial interest in the company" for the purpose of S. 2(22)(e) of the IT Act. He also carries on a proprietary business in the name and style of Rainbow Paints. The company maintains a running account in the name of Rainbow Paints and during the previous years relevant to the asst. yrs. 1968 69 and 1969 70, the years involved herein, the running account disclosed cash payments by the company to the assessee at Rs. 1,31,672 and Rs. 3,86,000 in the respective years. The ITO held that the payments would be deemed dividend income within the meaning of S. 2(22)(e). The AAC reduced the addition to Rs. 26,262 and Rs. 40,675 which represented the peak of the payments in the two years. The Tribunal has, on going through the details of the account, found that payments other than the payment of Rs. 28,500 in the asst. year 1968 69 and other than Rs. 10,000 in the asst. year 1969 70 were made as advances towards the purchases to be made by the company from the assessee. Accordingly, the Tribunal held that only the sum of Rs. 28,500 in the asst. year 1968 69 and Rs. 10,000 in the asst. year 1969 70 represented payments or advances within the meaning of S. 2(22)(e) of the IT Act and could be treated as deemed dividend income.

(3.) IN the above view of the matter, the question is answered in the affirmative and in favour of the assessee. No order as to costs.