Law: Income Tax Act, 1922

Section: 2(6A)(e)

Section 12(1B) , read with section 2(6A)(e) of the Indian Income-tax Act, 1922 - Advance or loan from certain company to shareholder treated as dividend - Assessment year 1956-57 - Legislature realised that private controlled companies generally adopted device of making advances or giving loans to their shareholders with object of evading payment of tax - It steppled into meet this mischief - Whether section 12(1B) read with section 2(6A)(e) was not beyond legislative competence of legislature - Held, yes - Whether these sections were neither contravened article 14, nor article 19 of Constitution - Held, yes FACTS The appellant held 11 out of 845 shares in a private limited company. Some time during 1955, the appellant took a loan amounting to over Rs. 4 lakhs from the company. A notice was issued to the appellant by the 8th ITO under section 22(2) of the 1922 Act calling upon him to make his return for the assessment year 1956-57. The ITO computed his income at Rs. 3,58,460. This amount included a sum of Rs. 2,83,126 representing the accumulated profits of the company. The ITO took the view that under section 2(6A)(e) of the 1922 Act the said amount must be deemed to be dividend received by the appellant and, as such, must be included in the total income of the appellant as income from other sources within the meaning of section 12(1B) of the 1922 Act. The appeal, before the AAC failed and was dismissed. Pending before the Tribunal, the appellant moved the High Court and in writ, contended that the relevant section 12(1B) read with section 2(6A)(e). On appeal to the Supreme Court HELD The inclusive definition of "dividend" takes in the payments to which clause (e) of section 2(6A) refers and makes them dividend for the purpose of the Act. Section 12(1) provides that the tax shall be payable by an assessee under the head "Income from other sources" in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads). Both these provisions, viz., section 2(6A)(e) and section 12(1B), were introduced in the Act by the Finance Act, 1955 (15 of 1955), which came into operation on the 1st…

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