COMMISSIONER OF INCOME TAX Vs. ARATI DEBI

JUDGEMENT

(1.) In this reference under Section 66(1) of the-Indian Income-tax Act, 1922, we are concerned with the following question of law referred to the High Court by the Tribunal : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only 25 per cent. of the accumulated profits of Messrs. K. C. Ghattack & Sons Pvt. Ltd., in the accounting year relevant to the assessment year 1952-53, could be treated as dividend within the meaning of Section 2(6A)(e) of the Indian Income-tax Act, 1922, and that accordingly only Rs. 1,001 out of the total advance of Rs. 29,563 made by the said company to the assessee in the said accounting year could be brought to tax by virtue of Section 12(1B) of the said Act for the assessment year 1955-56?"

(2.) As there is no dispute regarding facts in this case it is not necessary to state the same in any detail.

(3.) In this reference we are concerned with the assessment year 1955-56, of which the previous year is the Bengali Samvat year 1361 B.S., which ended on 13th April, 1955. The assessee, Prantosh Ghattack and others, were assessed in the status of legal heirs of late Bhabatosh Ghattack for the assessment year under reference. Upon the death of the said Prantosh Ghattack during the pendency of this reference, Sm. Arati Debi as heiress and legal representative of the said Prantosh Ghattack for herself and her minor daughters has been joined as a respondent in this reference. Late Bhabatosh Ghattack was a shareholder in Messrs. K. C. Ghattack & Sons Pvt. Ltd., holding 25 per cent. of its issued shares. The said company is a company in which the public are not substantially interested. The Income-tax Officer found, while scrutinising the records of the said company that the assessee had made large withdrawals by way of loans from the company and on the 1st April, 1955, such loans amounted to Rs. 30,666. According to the Income-tax Officer, since on that date the said company had accumulated profits to the tune of Rs. 78,071, the whole of the outstanding advances to the assessee, namely, Rs. 30,666, were to be treated as his dividend income within the meaning of Section 2(6A)(e) read with Section 12(1B) of the Indian Income-tax Act. As, in the opinion of the Income-tax Officer, the said dividend of Rs. 30,666 had escaped assessment, he initiated proceedings under Section 34 of the Indian Income-tax Act, 1922, and after giving opportunities to the assessee of being heard, the Income-tax Officer completed the supplemental assessment by including the gross amount of dividend of Rs. 41,581 and gave tax credit of Rs. 10,915 representing the difference between Rs. 41,581 and Rs. 30,666.