9911796707
Advanced Search 
TMI Blog1962 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... kshi Achi, a shareholder in a company called Panchanayaki Limited incorporated under the Indian Companies Act, borrowed from the company a sum of ₹ 70,000 on August 30, 1945. On her death in the year 1947, Sundaram Chettiar, her son, inherited her estate and became the owner of her shares in the company. It appears that he undertook the liability of his mother to the company and made himself indebted to it for the amount of principal and interest due by her. But he failed to discharge the debt and of course continued to be the shareholder of the company. It is in this state of affairs that sections 2(6A)(e) and 12(1B) of the Act came into the statute book under the Finance Act, 1955, with effect from 1st April, 1955. A reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation reserve 42,202 Balance in the profit and loss account 2,107 Total 44,309 Less: Rs. Taxes paid 741 Dividends declared 644 1,385 Net Total 42,924 Balance to be treated as dividends. This will be treated as dividends under section 12(1B)". In Tax Case No. 186 of 1959, the facts are as follows: Visalakshi Achi was a shareholder of a company called Maragathavalli Ltd. and incorporated under the Indian Companies Act. She borrowed a sum of ₹ 70,000 on August 30, 1945, from the company. On her death in 1947, her son, Manickavasagam Chettiar, inherited her shares in that company. He also undertook to discharge her liability to the company and made himself indebted for the amount of loan still due and outstanding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is whether section 12(1B) of the Act can be invoked by the assessing authorities on the facts and circumstances set forth above. Section 2(6A) defines "dividend". It is an artificial definition adopted by the legislature for the purpose of the taxing statute and strangely many things, which may not obviously be called dividend in the popular sense in which the expression is understood, receive the stamp of dividend under the Act. What is relevant for our purpose is only the following definition: "2(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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that tax shall be payable by an assessee on dividends earned by shareholders holding shares in companies. Section 12(1B) enables loans advanced by companies to shareholders prior to April 1, 1955, being brought to tax. The scheme of the Income-tax Act is only to tax the income of one year, that is, "the previous year" relating to the "assessment year", which has been defined in the Act. Though the loans might have been advanced long prior to April 1, 1955, this section treats them as dividends under section 2(6A) and deems them to have been received by the assessee as such dividends in the previous year relevant to the assessment year ending on March 31, 1956, if such loans remained outstanding on the first day of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment to bring to tax loans or advances made by the companies of the description contained in the section to shareholders long before the artificial and extended definition of the term "dividend" was conceived of by the legislature. A locus poenitentiae was however offered to the shareholders who obtained such loans to discharge them on or before June 30, 1955, so that tax on that amount can be avoided. The object of these provisions is to prevent companies from distributing dividends under the guise of loans. A safeguard has therefore been enacted that the loans should be treated as dividends only to the extent of accumulated profits of the company as under the law dividends cannot be paid except out of profits. It is urged on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shareholder and the company. The Income-tax Officer has proceeded on the basis that the relevant date to ascertain the accumulated profits of the company would be the commencement of the previous year relating to the assessment year 1955-56. This however is not the correct view of the matter. It is the date of payment by the company to the shareholder of the loan or advance that should be taken into account for the purpose of ascertaining the extent of its taxability in relation to the accumulated profits of the company. If the amount paid is far in excess of such accumulated profits the excess cannot be treated as dividend. The question that has now to be determined is whether the date of payment in these cases should be taken as the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
