Law: Income Tax Act, 1961

Section: 2(22)(e)

Income-tax---Dividend---Deemed dividend---Loan to shareholder to extent company possesses accumulated profits---Scope of S.2(22)(e)---Loan to shareholder--¬Death of shareholder---Debit balance in his estate account transferred to account of his wife in books of company---Transfer could not be treated as payment by company to wife---Amount transferred was not assessable as deemed dividend in hands of wife---Indian Income Tax Act, 1961, S.2(22)(e). Under the provisions of section 2(22)(e) of the Income Tax `Act, 1961, by a fiction, dividend includes any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. It is difficult to, introduce another fiction in respect of the words "payment by the company" by construing even a transfer entry as amounting to payment. The assessee was a shareholder in a private limited company. Her late husband, G. N. Sam, was also a shareholder in that company. For the assessment year 1962-63, a sum of Rs. 1,95,550 was assessed in the hands of her husband as deemed dividend by invoking the provisions of section 2(22)(e) of the Act. Deducting this amount of Rs.1,95,550 from the reserves of Rs.3,68,345, the balance of Rs.1,72,795 was treated as deemed dividend and brought to tax in the hands of the assessee for the assessment year 1962-63. The relevant previous year for the assessment year 1962-63 was the year ended on March 31, 1962. As on December 31, 1961, there was a debit balance of Rs.4,73,241 in the estate of late G. N. Sam. This amount was transferred to the account of the assessee in the books of the company. By such a transfer, the said amount in the hands of the assessee was shown as debit balance in the assessees account. The amount transferred was treated by the Income-tax Officer as deemed dividend under section 2(22)(e).…

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