TMI Blog1970 (2) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of the court was delivered by K. K. DESAI J.-This reference under section 66(1) of the Indian Income-tax Act, 1922, has arisen out of a single judgment given by the Income-tax Appellate Tribunal on May 21, 1962, in the matter of two appeals before the Tribunal bearing Nos. 5118 and 5119 of 1961-62 in connection with assessment years 1957-58 and 1958-59, the respective accounting years being calendar years 1956 and 1957. The question referred is as follows : " Whether, on the facts and in the circumstances of the case, the sums of Rs. 39,725 and Rs. 17,921 were rightly treated as dividends paid to the two shareholders by the assessee-company within the meaning of section 2(6A)(e) of the Act ? " The short relevant facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (6A)(e), the loans advanced cannot admittedly be held to be dividends unless the assessee-company possessed accumulated profits. The relevant parts of sub-section (6A)(e) run as follows : " (6A) 'dividend' includes-. . . . (e) any payment by a company, not being a company in which the public are substantially interested within the meaning of section 23A, 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 or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits . . . . " (Underlining is ours). The Income-tax Officer actually calculated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee-company for the previous years as mentioned in the assessment orders already made would be the correct basis. By totalling up the income assessed by the previous assessment orders, one could directly ascertain whether an assessee-company possessed accumulated profits. This finding was made by the Tribunal by stating : " It is sufficient if the company possesses the accumulated profits and, secondly, the word 'possesses', in this context, can only mean possesses after calculating the profits of the company as per the provisions of the Act and also . . . . 'possession of the accumulated profits may be in the abstract only and not actual possession' and further 'now the profits as per the provisions of the Act can only be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in possession of accmulated profits at the relevant dates. Apparently, the commercial profits accumulated by the concerned assessee-company cannot be ascertained and/or calculated without reckoning or taking into account all and singular the disbursements made and expenditure in fact incurred. The intent and purpose of the section appears to be to prevent disbursements to shareholders of the profits made by a company by way of loans and not by way of dividends. It is difficult to hold that the pharse " accumulated profits " in this section refers to the aggregate of the assessed income arrived at by disbursements and expenditures in fact incurred. There was no justification for the tax authorities and the Appellate Tribunal to proceed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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