NANDLAL KANORIA Vs. COMMISSIONER OF INCOME TAX CENTRAL

JUDGEMENT

(1.) This reference arises out of the assessment of Nandlal Kanoria, the assessee, to income-tax in the assessment year 1969-70 for which the previous year ended on the 31st March, 1969. The relevant facts found and/or admitted are shortly as follows :

(2.) The assessee is an individual. A large number of shares in North Bihar Sugar Mills Ltd. (hereinafter referred to as "the company") were owned by the assessee and the members of his family and they had substantial interest in the company within the meaning of Section 2(32) of the I.T. Act, 1961.

(3.) During the relevant period, the assessee obtained two loans from a sole proprietary concern, Indira & Co., respectively, of Rs. 75,000 on the 30th July, 1968, and of Rs. 2,00,000 on the 2nd September, 1968. At the assessment, the ITO brought on record a certificate issued by Indira & C6. to the effect that the said sum of Rs. 75,000 had been paid out of a loan received from the company and that the said sum of Rs. 2,00,000 was similarly paid out of another loan received from the same source. From the accounts of Indira & Co., the ITO found that on the 31st August, 1968, the assessee had repaid an amount of Rs. 1,00,000 by cheque to Indira & Co., and that on the same date the latter had issued a cheque in favour of the company. On the 2nd September, 1968, a sum of Rs. 4,75,000 was entered as advanced by the company to Indira & Co. out of which a cheque for Rs. 2,00,000 was issued by Indira & Co. in favour of the assessee. Subsequent repayment by the assessee was recorded and the entire loan was repaid by the 5th February, 1969. The ITO came to the conclusion that the repayment of Rs. 75,000 by the assessee to Indira & Co. and the corresponding repayment by Indira & Co. to the company were mere book entries, the net effect of the transactions being that the loan was enhanced from Rs. 75,000 to Rs. 2,00,000. The ITO found that the said amount represented a loan advanced by the company in an indirect way to the assessee and as such was dividend within the meaning of Section 2(22) of the I.T. Act, 1961, in the hands of the assessee. Deducting the gross dividend actually received by the assessee from the company, the ITO added back an amount of Rs. 1,73,750 as deemed dividend to the income of the assessee.