TMI Blog1993 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... One Dahyabhai Motibhai Amin also known as Dahyabhai Motibhai Manasvi, the assessee in Income-tax Reference No. 360 of 1980, and his brother, Purshottamdas Amin, were running a flour mill in partnership in the early 1940s. This firm was dissolved and the business was taken over by a new partnership firm consisting of Rasiklal D. Amin and Jashbhai P. Amin. In 1959, Jashbhai retired and, therefore, Rasiklal carried on the said business as sole proprietor. In 1962, the business was converted into a private limited company known as Kohinoor Flour Mills Private Limited. It appears that 3,690 shares were allotted to Rasiklal and 1,851 shares were allotted to Manasvi. It also appears that Rasiklal was residing outside India and the affairs of the company were managed by Manasvi. Some time after the formation of the company, Rasiklal returned to India and found that the company was mismanaged. He, therefore, filed a petition in this court alleging mismanagement and claimed that management should be handed over to him as he was the major shareholder. Jashbhai, who was earlier doing the business with Rasiklal, also filed a suit against Rasiklal on the ground that Rs. 6 lakhs were payable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz. Kohinoor Flour Mills Private Limited, under section 194 read with section 201 of the Act for its failure to deduct tax while making the said payment. The Income-tax Officer found that the assessee-company was a defaulter and, therefore, directed the company to pay interest amounting to Rs. 1,22,828 for the said default. The company preferred an appeal to the Appellate Assistant Commissioner who upheld the order passed by the Income-tax Officer and dismissed the appeal. The company then preferred an appeal to the Tribunal. In the appeal filed by Dahyabhai Motibhai Amin, the Tribunal held that the purpose or the object for which the loan was advanced by the company to its shareholder, Dahyabhai, was really irrelevant and, therefore, the said amount of loan was rightly treated by the Income-tax Officer and the Appellate Assistant Commissioner as deemed dividend in the hands of the assessee, Dahyabhai. The Tribunal, therefore, dismissed the appeal filed by Dahyabhai. The appeal filed by the company was allowed by the Tribunal. One member of the Tribunal held that section 194 cannot be interpreted to cover cases where the advance is given or the loan is made to a shareholder of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion raised by him that the said amount cannot be regarded as an advance or loan to Dahyabhai Amin cannot be accepted. As stated earlier, the dispute between Dahyabhai and his three sons on the one hand and Rasiklal, the other son of Dahyabhai, on the other hand, was referred to the arbitrators. In the award given by the arbitrators, Dahyabhai Motibhai Amin and his family were held liable to pay Rs. 6 lakhs to Rasiklal for relinquishment of his right, title and interest in the undivided properties of Dahyabhai Amin. The said amount was to be paid immediately after necessary orders in that behalf were obtained from this court. A provision for obtaining necessary orders from this court was made because at that time, the company petition and the connected suits were pending in this court. On the basis of this award and consistently with it, the parties to the proceedings in Company Petition No. 10 of 1964 and other connected suits, prepared the consent terms and filed them in this court. On the basis of the said consent terms, this court had passed an order. In the consent terms, after referring to the obligation of Dahyabhai Amin and his other three sons, a provision was made that "i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs by the company was rightly treated by the Tribunal and the authorities below as loan by the company to its shareholder, Dahyabhai. It was, therefore, rightly treated as deemed dividend and thus income in the hands of the assessee-Dahyabhai. It is also difficult to appreciate how the Tribunal after coming to the conclusion that "we have to proceed on the basis that payments are deemed dividend within the meaning of section 2(22)(e) and section 194", could have taken the view that the company cannot be said to have committed a default contemplated by section 194 and, was, therefore, not liable to pay interest. We fail to appreciate how merely because payment of Rs. 6 lakhs by the company was an integral part of the arrangement between the parties and merely because an order was passed by this court in this behalf in view of the compromise arrived at between the parties, the nature of payment by the company to Dahyabhai would change its character. As stated earlier, this court passed the order because the parties had arrived at a compromise. The order was passed as per the consent terms and all the parties (including the company and Dahyabhai Amin) had agreed that the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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