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TMI Blog1969 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 aforesaid, he treated the aforesaid sum of Rs. 27,506 as dividend paid to Sri Sriniwas Fatehpuria during the financial year 1955-56. As a consequence of treating the sum of Rs. 27,506 as dividend paid by the assessee during the financial year 1955-56, the corporation tax rebate granted for the aforesaid year became li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litary 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. It was contended that at the most the amount that could be deemed to be dividend out of the loan advanced would be Sri Fatehpuria's share in the accumulated profits. There was no dispute that the total accumulated profits of the company was Rs. 64,800. Sri Fatehpuria held 250 shares out of the total issued shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 Part II of the Finance Act, 1956. The assessee was entitled to a rebate at four annas in the rupee on the total income. But such rebate was liable to be reduced by two annas on that part of the dividend which exceeds six per cent. of its paid-up capital distributed to its shareholders. The question for determination here i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 with the object of evading payment of tax. Mr. Pal submitted that unless distribution of dividend in clause (b) of the second proviso to paragraph D of Part of the Finance Act, 1956, is so construed as to include payment of a loan made to a shareholder as contemplated under section 2(6A)(e) of the Indian Income-tax Act, 1922 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt ". 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) of the Finance Act of 1956 states that the expression " dividend " shall be deemed to include " any distribution " included in the expression " dividend " as defined under clause (6A) of section 2 of the Income-tax Act. Therefore, it is clear that it did not include other payments by a company which were not distributions b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "dividend" given by that Act. Therefore, the order reducing the corporation tax rebate was not justified. The two decisions relied on by Mr. Pal do not deal with the controversy that we have to decide in this case. In that view of the matter we do not think it necessary to deal with the two decisions referred to us by Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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