TMI Blog1997 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... N J.--- The appellant, Miss P. Sarada, is a major share holder of Universal Radiators Pvt. Ltd. (hereinafter referred to as " the company "). It is a company in which the public were not substantially interested. While completing the assessment of the appellant for the assessment year 1973-74, the Income-tax Officer found that during the period July 3, 1972, to March 22, 1973, she had withdrawn a total sum of Rs. 93,027 from the company. The appellant had a running account with the company. At the material time she did not have any credit balance in her account with the company. This excess withdrawal was treated by the Income-tax Officer as deemed dividend under section 2(22)(e) of the Income-tax Act on two grounds : (1) The assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the withdrawals made by the assessee from Universal Radiators Private Limited totalling Rs. 93,027 cannot be assessed in the hands of the assessee under section 2(22)(e) of the Income-tax Act, 1961, for the year 1973-74 ?" The High Court answered the question in the negative and in favour of the Revenue. The High Court took note of the fact that the accounting period for the relevant assessment year 1973-74 was April 1, 1972, to March 31, 1973. The assessee was a substantial shareholder of the company and was drawing funds from the company till March 22, 1973. As a result of various withdrawals made by the assessee, her credit balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debiting the credit balance of Mahesh which remained intact till March 31, 1973. The High Court concluded that the various withdrawals made by the assessee were from the company's accumulated profits. We do not find any fault with the reasoning of the High Court. Section 2(22)(e) as it stood at the material time defined dividend to include " any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who has a substantial interest in the company .... to the extent to which the company .... possesses accumulated profits ". In the instant case there is no dispute that the appellant had a substantial interest in the company. The natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment was made but that will not alter the position that the assessee had drawn a total amount of Rs. 93,027 between July 3, 1972, to March 22, 1973, from the company when her account with the company did not have any credit balance at all. That means these advances made by the company to the assessee will have to be treated as deemed dividends paid on the dates when the withdrawals were allowed to be made. Subsequent adjustment of the account made on the very last day of the accounting year will not alter the position that the assessee had received notional dividends on the various dates when she withdrew the aforesaid amounts from the company. A point was taken that the High Court has reappraised the facts and had disbelieved the lette ..... X X X X Extracts X X X X X X X X Extracts X X X X
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