TMI Blog1989 (9) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 to P. J. George, R 33,000 to. P. J. Eappen and Rs. 33,000 to P. J. Ranjit, the three sons of the assessee. Two of the sons of the assessee were minors during the relevant previous year. The Income-tax Officer, while completing the assessment of the assessee, treated these amounts as payments made on behalf of, or for the benefit of, the assessee and, therefore, considered them, under section 2(22)(e) of the Income-tax Act, 1961, as deemed dividend in the hands of the assessee. On appeal, the Commissioner of Income-tax (Appeals) found that the payments were not made either to the assessee or on his behalf or for his individual benefit and, therefore, held that the amount paid to the, sons cannot be considered as dividend in the hands of the assessee. The Revenue took up the matter in appeal before the Tribunal and the Tribunal held that the conclusion of the Income-tax Officer that the cash, gifts paid by the company to the sons of the assessee were payments made on behalf of or for the individual benefit of the assessee rests on a mere assumption and not on facts brought on record. The Tribunal, therefore, dismissed the appeals. Aggrieved by the orders of the Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition." Section 2(6A) of the 1922 Act corresponds to section 2(22) of the 1961 Act with which we are concerned here which reads as under dividend includes (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares, by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made by the company. They are: (a) any payment of any sum by way of advance or loan to a shareholder ; (b) any payment on behalf of a shareholder ; and (c) any payment for the individual benefit of a shareholder. All the conditions for attracting section 2(22)(e) have been satisfied, admittedly, except conditions (b) and (c) mentioned above in this case. If the gifts made to the sons of the assessee by the company are payments on behalf of the assessee or payments for the individual benefit of the assessee, then those gifts could be treated as deemed dividend in the hands of the assessee. Since an artificial definition has been given and fiction has been introduced by the Legislature in enacting section 2 (22) (e) to bring into the net of dividend any payments made on behalf of or for the individual benefit of the shareholder, we are directed to interpret it Strictly. In the decision in Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345, the Supreme Court observed, referring to the language of sections 2(6A)(e) and 12 (1B) of the 1922 Act, as under : "To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 (Bom)). Since a fiction has been introduced to bring amounts paid otherwise than as dividend, as generally understood, into the net of dividend for the purpose of taxation, it has been held that the language of section 2(22)(e) should be given a strict construction (See Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC), CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 (SC), CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637 (SC), Philip John Plasket Thomas v. CIT [1963] 49 ITR 97 (SC), CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC), Bhogilal Laherchand v. CIT [1954] 25 ITR 523 (Bom) and B. M. Desai v. V. Ramamurthy, ITO [1958] 34 ITR 409 (Bom)). Counsel for the Revenue referred to the decisions in CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC), Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 (SC) and Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC) ; AIR 1986 SC 1370 and submitted that the entire transaction formed part of a basic arrangement or scheme between the assessee and the company and that the device adopted by the assessee is an obvious device to avoid tax liability and that it req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and not on facts brought on record. Since there was no finding to this effect based on concrete facts, the Tribunal also did not interfere with the order of the Commissioner of Income-tax (Appeals). For the year 1976-77, the amount gifted by the company to the son of the assessee was Rs. 1 lakh. That also was treated by the Income-tax Officer as deemed dividend on the assumption that such transfer is only on behalf of, or for the benefit of, the assessee. On first appeal, the Commissioner of Income-tax (Appeals) found that the Income-tax Officer had to prove strictly, expressly and explicitly that the payment was made on behalf of the shareholder and that no attempts have been made to show that the gift was made by the company to the son on behalf of the shareholder or for the benefit of the shareholder. The Revenue could have led evidence to show that the payment was made by the company to the sons of the shareholder, but, in reality, the amounts were received by the shareholder. There was no evidence to that effect. The Revenue could have proved that the ultimate destination of the amount is the father. But the facts adduced will show that the amount has been utilised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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