TMI Blog1977 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... th section 12(1B) of the Indian Income-tax Act, 1922, even if that advance or loan is subsequently repaid in its entirety during the relevant previous year in which it was taken, is the only question that falls to be determined in this appeal by special leave. The assessment year is 1957-58 and the corresponding previous year is the calendar year 1956. The assessee is a shareholder and the managing director of M/s. Dolaguri Tea Co. (P.) Ltd. The company is admittedly one in which the public are not substantially interested within the meaning of section 23A of the Indian Income-tax Act, 1922 (for short, " the Act "). At the commencement of the previous year, there was in the books of the company a credit balance of Rs. 65,246 in the assessee's account, which had been brought forward from the earlier year. Between the 11th January and the 12th November, 1956, the assessee withdrew in cash from time to time from the company, amounts aggregating Rs. 4,97,442. The first two cash amounts of Rs. 3,50,000 and Rs. 40,400 were taken by the assessee on 11th January, 1966. Deducting therefrom the opening balance of Rs. 65,246 and two more items, namely, Rs. 1,40,000, being outstanding divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or loan an amount from the company during the course of a previous year but had returned the same to the company before the close of that previous year, it can only be said while computing the shareholder's total income at the end of that previous year that no advance or loans from the section 23A company of which he was a shareholder stood for his benefit at the time relevant for computation of his total income. The advances or loans taken during the interim periods of the previous year would just have to be ignored. " On these premises, the Judicial Member came to the conclusion that the sum of Rs. 2,72,703 grossed up to Rs. 3,19,345 was not a dividend within the fiction under section 2(6A)(e) of the Act. On account of this difference of opinion, the following question was referred to the President of the Tribunal: " Whether, on the facts and in the circumstances of the cases, the sum of Rs. 2,72,703 net (Rs. 3,19,245 gross) is to be treated as dividend income in the hands of the assessee within the meaning of section 2(6A)(e) ?" The President agreed with the Accountant Member and held that an advance or loan received by the shareholder of a private company forth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend within the meaning of clause (e), to the extent to which it is so set off; Explanation.-- The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956." Sub-section (15) defines " total income " as meaning " total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act." Section 3 is the charging section. Two of the principles deducible from the section are: (1) That the tax is levied on the total income of the assessable entity; (2) That each previous year is a distinct unit of time for the purpose of assessment, and the profits made or liabilities or losses incurred before or after the relevant previous year are wholly immaterial in assessing the profits of that year unless there is a statutory provision to the contrary. Section 4(1), so far as it is material, reads as follows : " 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding on the first day of such previous year." Sub-section (2), inter alia, lays down that in computing any income by way of dividend, allowance shall be given for any reasonable sum paid by way of commission or remuneration to a banker or any other person realising such dividend on behalf of the assessee. It is to be noted that sub-section (6A) of section 2 and sub-sections (1A) and (1B) were inserted in the Act by the Finance Act, 1955, with effect from the 1st April, 1956. In the relevant assessment year, section 16(2) of the Act was operative and ran as follows: " 16. (2) For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the company ......... for the financial year in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend." Mr. G. C. Sharma, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) back as a loan, and again repays it after a week, and again retakes the same amount as loan--all the three loans being taken and repaid in the same year. If the unrestricted interpretation of the provision sought by the revenue were to be adopted, the same amount of loan in all the three transactions of loan would be subjected to triple taxation. Such an absurd and oppressive result, says the counsel, would be against the intendment of the provision and inconsistent with the scheme of the Act which generally avoids double taxation. The upshot of the arguments of Mr. Sharma is that under the Act only that item or entity is taxable which is rationally capable of being considered as the income of the assessee; that an advance or loan which is genuine and not a subterfuge for payment of dividend and is not subsisting or outstanding at the end of the previous year on account of its repayment by the shareholder, cannot reasonably be deemed to be his dividend income within the contemplation of section 2(6A)(e) read with section 12 of the Act. Mr. Sharma has taken us through various decisions having a bearing on the problem. The cases referred to, discussed or sought to be distinguished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manner which suppresses the mischief and advances the remedy. It is maintained that the language of the provision is in question is plain and unambiguous and no question of seeking external aid for its interpretation arises ; the court must give effect to it regardless of the hardship, if any, resulting therefrom. The sum and substance of his arguments is that since all the factual ingredients necessary for raising the fiction contemplated by section 2(6A)(e) and section 12(1B) have been found to exist by the income-tax authorities and the Tribunal, the loan had to be treated as the assessee's dividend income, the moment it was received, and the subsequent repayment of the loan could not neutralise or take it out of that category of income. Counsel has drawn our attention to the observations of this court in Navnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Commissioner of Income-tax [1965] 56 ITR 198 (SC). He has further adopted the reasoning of the Bombay High Court in Walchand Co. Ltd. v. Commissioner of Income- tax [1975] 100 ITR 598 (Bom). Section 2(6A)(e) and section 12(1B) were inserted in the Act by the Finance Act, 1955, which came into operation on April 1, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax that the payment represents distribution of the company's income. But section 2(6A)(e) and section 12 of the Act do not leave this question to the adjudication of the income-tax authorities. Parliament has itself in the exercise of its legislative judgment raised a conclusive presumption, that in all cases where loans are advanced to a shareholder in a private limited company having accumulated profits, the advances should be deemed to be the dividend income of the shareholder. It is this presumption juris et de jure which is the foundation of the statutory fiction incorporated in section 2(6A)(e). Thus, section 108 of the Commonwealth Act appears to be more reasonable and less harsh than its Indian counterpart. From the above discussion it emerges clear that the fiction created by section 2(6A)(e) read with section 12(1B) of the Act is inexorably attracted as soon as all the conditions necessary for its application exist in a case. In Navnit Lal's case [1965] 56 ITR 198, 202 (SC) this court, after an analysis of these provisions, listed these conditions, as follows : "... the combined effect of these two provisions is that three kinds of payments made to the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amounted to Rs. 6,83,005 while from January 11, 1956, to November 12, 1956, the assessee received in cash from time to time from the company payments aggregating Rs. 4,97,442. After deducting the opening credit balance and some other items credited to his amount, the Income-tax Officer found that in the previous year the assessee-shareholder had received a net payment of Rs. 2,72,703 by way of loan or advance from the company. The company's business is not money-lending and it could not be said that the loans had been advanced by the company in the ordinary course of its business. Thus, all the factual conditions for raising the statutory fiction created by sections 2(6A)(e) and 12(1B) appeared to have been satisfied in the instant case. Mr. Sharma, however, contends that in order to attract the statutory fiction one other essential condition is that the loan or advance must be outstanding at the end of the previous year, and if the loan had ceased to exist owing to repayment or otherwise before the end of the year--as in the present case--the fiction cannot be invoked. In this connection, counsel has again referred to the last limb of section 108(1) of the Commonwealth Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mb of sub-section (1) of section 108 of the Commonwealth Act. When sections 2(6A)(e) and 12(1B) were inserted by the Finance Act, 1955, Parliament must have been aware of the provision contained in section 108 of the Commonwealth Act. In spite of such awareness, Parliament has not thought it fit to borrow whole hog what is said in section 108(1) of the Common-wealth Act. So far as the last limb of section 108(1) is concerned our Parliament imported only a very restricted version, and incorporated the same as the " fifth condition " in sub-section (1B) of section 12 to the effect, that the " payment deemed as dividend shall be treated as a dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remains outstanding on the last day of such previous year ". The word " such " prefixed to the " previous year " shows that the application of this clause is confined to the assessment year ending on March 31, 1956. In the instant case we are not concerned with the assessment year ending March 31, 1956. This highlights the fact that the legislature has deliberately not made the subsistence of the loan or adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
