Law:

Section:

Section 2(22) of the Income-tax Act, 1961 [Corresponding to sections 2(6A), read with section 12(1B) of Indian Income-tax Act, 1922] – Deemed dividend – Assessment year 1955-56 – Assessee held 25 per cent shares of company in which public were not substantially interested – Assessee had taken loan from company in excess of its accumulated profit for that year – Whether loan taken by assessee to extent of accumulated profit of that year and not to extent of 25 per cent of accumulated profit would be taxable as dividend under section 2(6A)(e), read with section 12(1B) of 1922 Act – Held, yes FACTS The assessee was holding twenty five per cent shares of the company in which the public were not substantially interested. The Tribunal found that in the year 1952-53 a loan of Rs. 29,563 was made to the assessee and in that year the accumulated profit of the company was Rs. 4,003 and as the assessee was only interested to the extent of 25 per cent, in the shareholding of the company, only one-fourth of that amount would be liable to be taxed as dividend under section 2(6A)(e) read with section 12(1B) of 1922 Act. On reference: HELD The advance made to the assessee in the assessment year 1952-53 to the extent of the accumulated profit of that year, viz., Rs. 4,003 and not to the extent of 25 per cent (being the one-fourth share of the assessee) of the said amount of accumulated profit would be taxable as dividend under section 2(6A)(e) read with section 12(1B) of the 1922 Act in the assessment year 1955-56. Note : The case was decided in favour of the revenue. CASES REFERRED TO CIT v. Bhagwat Tewari [1976] 105 ITR 62 (Cal.). JUDGMENT Pyne, J.—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…

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