TMI Blog1996 (12) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... ax under section 263 of the I.T. Act with a direction to re-do the same in accordance with law. According to the Commissioner, the assessees have taken loans from the closely held companies and there were accumulated profits. The Assessing Officer did not compute the deemed dividends under section 2(22)(e) of the Act. In pursuance thereof, the assessments have been framed. The assessees disputed the computation of the deemed dividends as also the computation of the accumulated profits for the aforesaid purpose. The CIT (Appeals) upheld the orders of the Assessing Officer and the assessees are aggrieved. 2. The learned counsel for the assessees reiterated the contentions that were taken before the revenue authorities with the help of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 2(22)(e) are commercial profits. Insofar as the loans taken during the period 1-12-1982 to 31-3-1983 are concerned, there is no approved Balance Sheet indicating what the accumulated profits of the company were during this period with reference to each date of the loan. According to the learned counsel unless the accounts were finalised and the profits are arrived at and approved by the General Body there can be no question of accumulated profits. According to him the profits do not accrue on day-to-day basis or month to month basis, but only at the end of the accounting year after the accounts are drawn, closed and audited. According to him, the Explanation 2 to section 2(22)(e) no doubt says that the expression " accum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly argued that the assessment of deemed dividend is correctly made in accordance with law and the accepted principles of accounting. 4. We have carefully considered the rival submissions and perused the material on record. The term ' dividend ' under section 2(22) is defined in an inclusive manner which means dividend as ordinarily understood under the Companies Act and also the heads of payment or distribution specified therein. Reference may be made to the decision in the case of Hari Prasad Jayantilal Co. v. V.S. Gupta [1966] 59 ITR 794 (SC). The term ' dividend ' is defined to include 5 kinds of distribution. One such distribution as defined in section 2(22)(e) reads as under : " (e) any payment by a company, not being a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place." The accumulated profit signifies firstly that there must have been profits in earlier years and secondly that amounts out of such profits have been accumulated from time to time, with the result that there is some amount of accumulated profits in the possession of the company just before the commencement of the accounting year. The profits referred to in this terminol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to the commercial profits and not with reference to the assessed profits. 5. Now coming to the accumulation of the current profits in accordance with the Explanation 2, it is incumbent on the part of the revenue to include all profits of the company up to the date of distribution. In the absence of the day-to-day profit and loss account it cannot be concluded that the expression ' accumulated profits ' shall not include the current profits. That will only defeat of the intention and purpose of Explanation 2. The Calcutta High Court in the case of Burdwan Wholesale Consumers' Co-operative Society Ltd v. CIT [1991] 191 ITR 570/57 Taxman 227 held that legal fiction is to be given the fullest possible effect. This principle is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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