Law:

Section:

Section 2(22) of the Income-tax Act, 1961 (Corresponding to section 2(6A)(e) of the Indian Income-tax Act, 1922) - Deemed dividend - Assessment year 1956-57 - Whether in case of company, entire amount which is available for distribution as profits on a particular date would be accumulated profits and the any amount paid as advance or loan to shareholder to extent of this amount of accumulated profits will be dividend within meaning of section 2(6A)(e) of 1922 Act - Held, yes FACTS The assessee was a shareholder in the Company. The company advanced to him a sum of Rs. 74,642 between 1-11-1955 and 23-11-1966. The net income of the company after taking into account the losses of the earlier years for the relevant accounting year was Rs. 1,52,827. After providing for income-tax liability the amount available with the company in the form of profits was Rs. 82,642. 31-10-1955 was the date on which the previous year of the company ended. Subsequently, at the annual general meeting of the company Rs. 74,560 was declared as dividend. The ITO held that the entire amount paid by way of loan to the assessee would be dividend income, within the meaning of section 2(6A)(e) of the Indian Income-tax Act, 1922. The AAC held that as it was only in the year 1954-55, that the company had for the first time earned profits, the amount advanced to the assessee by the company, could not be deemed to be out of the accumulated profits of the company. The Tribunal allowed the revenue's appeal in part holding that out of the total amount of Rs. 82,642 the accumulated profit would be deemed to be only that part, which would be left over after deducting the sum of Rs. 74,560 declared as dividend by the company at its annual general meeting. On reference : HELD Dividend may be declared by the company even after the amount has been paid and treated as dividend under clause (e) of section 2(6A) of the 1922 Act. If any amount is allocated as dividend to the person to whom the payment has been made by the company earlier, the same would be adjustable and the shareholder concerned will not be liable to pay tax over again on the amount declared as dividend. It would be set off and will not be…

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