TMI Blog1969 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year for the assessment year 1956-57, the assessee advanced a sum of Rs. 27,506 to Sri Sriniwas Fatehpuria, a shareholder and a director of the company. The original assessment for the year 1956-57 on the assessee-company was made on the 13th February, 1958. Subsequently, in the course of the assessment for the year 1957-58, the Income-tax Officer discovered that the assessee had made the aforesaid loan to one of its shareholders and directors. Action was, therefore, taken by the Income-tax Officer under section 34 of the Indian Income-tax Act, 1922, and as the Income-tax Officer found that the assessee-company had sufficient accumulated profits on the first day of the financial year 1955-56, to cover the advance of Rs. 27,506 afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The Tribunal held that the withdrawal of rebate under the second proviso to paragraph D of Part II of the Finance Act, 1956, was in respect of any dividend distributed by a company to its shareholders in excess of 6% of its paid up capital. The Tribunal was further of the opinion that a loan or advance to a solitary shareholder could not be said to be a distribution by the company of any dividend to its shareholders, as contemplated by the second proviso to paragraph D of Part II of the Finance Act, 1956. The Tribunal, therefore, was of the opinion that the order reducing the corporation tax rebate was improper and allowed the appeal of the assessee. Before the Tribunal an alternative argument was advanced on behalf of the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated profits of the company could be deemed to be dividend paid to that shareholder to the exclusion of the other shareholders ? " Sub-clause (b) of the second proviso to paragraph D of Part II of the Finance Act, 1956, directs reduction at certain specified rates mentioned in the said sub-clause, of the rebate granted to an assessee in the following terms : " (b) in addition, in the case of a company referred to in clause (ii) of the preceding proviso which has distributed to its shareholders during the previous year dividends in excess of six per cent. of its paid-up capital, not being dividends payable at a fixed rate..." There is no dispute that this is a company referred to in clause (ii) of the first proviso to paragraph D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contemplated under clause (b) of the second proviso to paragraph D of Part II of the Finance Act, 1956 ? In the Finance Act of 1956, for the purposes of paragraph D, explanations have been provided Explanation (ii) to paragraph D of Part II of the Finance Act, 1956 states that the expression " dividend " shall be deemed to include any distribution included in the expression " dividend " in clause (6A) of section 2 of the Income-tax Act. Mr. B. L. Pal, learned counsel for the revenue, contended before us that the purpose of introducing the definition in sub-clause (e) of section 2(6A) of the Income-tax Act was to defeat the devices made by certain privately controlled companies of making advances or giving loans to their shareholders w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1922, as it stood prior to the introduction of the Finance Act, 1956. With that background it is not possible to say that when the legislature has used the expression " distributed " in clause (b) of the second proviso to paragraph D of Part II of the Finance Act, 1956, it intended to include " paid " or " payment ". By enacting clause (e) of section 2(6A) of the Indian Income-tax Act, 1922, the legislature has created a fiction and has made the payments referred to in clause (e) " dividend " for the purposes of the said Act. But the legislature has not made the further fiction and has made them " dividend distributed by a company ". In that context we have to construe Explanation (ii) of the Finance Act, 1956. Explanation (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kground of Explanation (ii) of the said Act and to say that when the legislature has used the expression " distributed " to its shareholders it wanted to include " payment " made to the shareholders. In view of the language used and in view of the explanation given to "dividend " in the Finance Act, 1956, it is not possible to accept the contentions made on behalf of the revenue in this case. Therefore, loans obtained by Mr. Fatehpuria in this case would be dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922. But by payment of these loans there was no distribution of the dividend by the company as contemplated by clause (b) of the second proviso to paragraph D of Part 11 of the Finance Act, 1956, in view of the explanation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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