TMI Blog1962 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 the section will be made later. In the assessment of Sundaram Chettiar under the Income-tax Act for the assessment year 1955-56 relevant to the accounting year ended March 31, 1955, the Income- tax Officer treated the loan outstanding from him to the company as his dividend income and brought that amount to tax. The assessee unsuccessfully preferred appeals to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal. These appellate authorities also took the view, in agreement with that of the Income-tax Officer, that under section 12(1B) of the Act the outstanding loan due to the company was taxable. On an application filed by the assessee for reference under section 66(1) of the Act, the following question has been referred to us by the Tribunal: Whether, on the facts and in the circumstances of the case, the sum of ₹ 42,924 was liable to be treated as dividend within the mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance of the assessee, the Tribunal has referred the following question to this court under section 66(1) of the Act: Whether on the facts and in the circumstances of the case the sum of ₹ 12,842 was liable to be treated as dividend within the meaning of section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act? The amount of ₹ 12,842 has been arrived at by the Income-tax Officer in the following manner. He observed in his assessment order: Inasmuch as he (assessee) has not discharged the loan before the extended time limit of June 30, 1955, it has to be treated as a loan within the meaning of section 12(1B) of the Act, to the extent of the accumulated profits. The accumulated profits will be as under; As on June 30, 1954. Rs. Taxation and general reserve 38,388 Balance in the profit and loss account 2,175 Total 40,563 Less: Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar relevant to the assessment year ending on the 31st day of March, 1956, if such a loan or advance remained outstanding on the first day of such previous year. Section 2(6A)(e) has introduced a fiction that loans advanced by a company to a shareholder should be held to be dividends. Section 12 provides 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 such previous year. As considerable hardship was created by this statutory provision by bringing to tax loans advanced years ago, the Central Board of Revenue issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and if she was the assessee in that year, transactions between her and the companies would fall quite clearly within the ambit of the taxing provision. The crucial question, therefore, is was there a payment by the companies to the assessees ? As stated already the assessees themselves undertook to discharge the loans due by their mother to the two companies. It is not necessary that payment should have been made by the company to the shareholder in the current coins of the realm. Earl Jowitt points out in his Dictionary of English Law under the caption payment as follows, at page 1318: Payment in fact is an actual payment from the payer to the payee; payment in law is a transaction equivalent to actual payment. We are unable to agree with the contention urged on behalf of the assessees that inasmuch as no sum of money was received in cash or in specie by the assessees from the companies, there can be no payment within the meaning of section 12(1B) of the Act. The substantial requirement to attract the applicability of section 12(1B) is that there should be the jural relationship of debtor and creditor between the shareholder and the company. The Income-tax Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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