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Commissioner of Income-tax Versus Smt. Savithiri Sam

1997 (9) TMI 629 - MADRAS HIGH COURT

TAX CASE NO. 1104 OF 1982, REFERENCE NO. 665 OF 1982 - Dated:- 17-9-1997 - J. KANAKARAJ AND K. NATARAJAN, J. For The Appellant : Chitra Venkataraman For The Respondent: P.P.S. Janarthana Raja JUDGMENT J. Kanakaraj, J.-The assessee is a shareholder in a private limited company called Sujani Textiles Ltd. Her husband late Shri G. N. Sam was also a shareholder in that company. Her husband withdrew large sums of money on different dates from the said company. On December 31, 1961, there was a total .....

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377; 3,68,345 the balance of ₹ 1,72,795 was treated as deemed dividend and brought to tax in the hands of the assessee for the assessment year 1962-63. The relevant previous year for the assessment year 1962-63 is the year ended on March 31, 1962. As on December 31, 1961, there was a debit balance of ₹ 4,73,241 in the estate of late G.N. Sam. This amount was transferred to the account of the assessee in the books of the said company. By such a transfer, the said amount in the hands o .....

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of that liability. The Commissioner (Appeals) overruling the order of the Income-tax Officer reduced the amount as deemed dividend to only ₹ 43,550. The Tribunal determined the loan amount taken by the assessee at only ₹ 15,542 and directed that the said amount alone should be treated as deemed dividend under section 2(22)(e). On the above facts and circumstances, the following question of law has been referred for consideration by this court, at the instance of the Revenue. "Wh .....

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section may be extracted : "2(22) 'dividend' includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in .....

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f the correct interpretation to be placed on section 2(22)(e) the Tribunal preferred to follow the judgment of this court in G.R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13. The Income-tax Officer, on the other hand, had preferred to follow a Division Bench judgment of this court in T. Sundaram Chettiar v. CIT [1963] 49 ITR 287 . Though he did not actually refer to the decision, he had in fact applied the ratio of the said decision. Our task is, therefore, simplified in the sense we have only t .....

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to the company and made himself indebted to the company for the amount of principal and interest due by her. Under these circumstances, under the earlier Act identical provisions of law were applied and the loan was treated as a dividend income and brought to tax. The Division Bench on the above facts held as follows (page 292) : "It is urged on behalf of the assessees that the loans were advanced by the companies only to Visalakshi Achi and that there was no payment 'by the companies .....

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ischarge 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 beha .....

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ts of the company is the date on which each of the assessees made himself personally liable to the companies. G.R. Govindarajulu Naidu v. CIT [1973] 90 ITR 13 (Mad), is a case where the assessee family held 3,300 partly paid up shares in a private limited company. In the year ended on December 31, 1956, a sum of ₹ 1,50,202 was debited to the profit and loss account and credited to the development rebate reserve account. Similarly, for the year ended on December 31, 1957, also a similar exe .....

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larly, for the year ending March 31, 1959, a sum of ₹ 1,46,728 was assessed as dividend under section 2(6A)(e) for the same reason. The sum of ₹ 1,46,728 was arrived at by adding up the withdrawals during the year and the amount of first and second calls of the share monies payable on 3,300 shares held by the company. It is needless to point out that section 2(6A)(e) is the predecessor to section 2(22)(e). The Division Bench had taken note of the earlier judgment reported in T. Sunda .....

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