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 1957-58 - Whether payment by a company not being a company in which public are substantially interested within meaning of section 23A of 1922 Act of any sum by way of advance or loan to a shareholder, not exceeding accumulated profits possessed by company is to be deemed as his dividend under section 2(6A)(e) of 1922 Act read with section 12(1B) of 1922 Act even if that advance or loan is subsequently repaid in its entirety during relevant previous year in which it is taken - Held, yes FACTS The assessee was a shareholder and the managing director of Company D. The company was admittedly one in which the public were not substantially interested within the meaning of section 23A of 1922 Act. At the commencement of the previous year, there was in the books of the company a credit balance of Rs. 65,246 in the assessee's account, which had been brought forward from the earlier year. Between the 11th January and the 12-11-1956, the assessee withdrew in cash from time to time from the company certain amount The first two cash amounts of Rs. 3,50,000 and Rs. 40,400 were taken by the assessee on 11-1-1966. Deducting therefrom the opening balance of Rs. 65,246 and two more items, namely, Rs. 1,40,000, being outstanding dividends declared on 31-12-1955, of his major son, and transferred to his account, and a further dividend of Rs. 19,493 credited to his account from 'K' Tea Estate, there remained a sum of Rs. 2,72,703 to the debit of the assessee in the books of the company as on the 12-11-1956. The assessee paid back certain amount and also his account was credited with certain amount of dividend. In this manner before the end of the previous year, the assessee's account was credited with an aggregated amount which exceeded the debit balance as on 12-11-1956. Thus at the end of the relevant previous year, no advance or loan was due to the company by the assessee. The ITO found that the accumulated profits of the company as on 1-1-1956, amounted to Rs. 6,83,005. He, therefore, deducted the two aforesaid items of Rs.…

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