TMI Blog1984 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... hri J.R. Cama holds 13 shares of Cama Motors. (d) The assessee along with Shri B.D. Rawal was a partner in a firm of Victory Wood Works, to which Miss Aiyesha Jahangir Cama was admitted to the benefits of the partnership. (e) Cama Motors had given a loan of Rs. 20,000 to Victory Wood Works on 26-12-1975. (f) With effect from 1-1-1977, the assessee became a sole proprietor of Victory Wood Works vide deed of dissolution of partnership dated 11-7-1977. (g) As on 31-3-1977 the loan account in the name of Victory Wood Works stood at Rs. 23,037.80 (along with interest) in the books of Cama Motors and as on 31-3-1978, it was Rs. 25,437.80 (along with interest). 4. On the basis of an intimation received from the ITO Companies Circle-II, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case the amount was advanced in the beginning of the year but loan was returned before the end of the accounting year. In spite of that the Supreme Court held that this amount should be taxed under section 2(22)(e). In the case before us, the amount was advanced to the firm in which the assessee was 8 annas partner during the year 1975. The firm was dissolved with effect from 1-1-1977 and as per the deed of dissolution reported above, the assessee became the sole proprietor of the entire concern with all its assets and liabilities with effect from 1-1-1977. Therefore, in the books of the company the assessee became the debtor for the first time with effect from 1-1-1977. In other words if the company had to recover the loan on or aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 5-7-1983 that the appellant is shareholder of 202 shares as also 50 equity shares in the name of minor out of 2,000 equity shares of the company. The position of shareholdings of the other family members is not indicated but is clear that the appellant being a person who has substantial interest in the company, the advance or loan to her is a deemed dividend. The ITO was, therefore, justified in including the loan together with the accrued interest thereon as income under section 2(22)(e) of the Act." 6. Being aggrieved by the order of the AAC, the assessee came up in appeal before the Tribunal. The learned counsel for the assessee submitted that since the assessee owned only 202 shares out of 2,000 shares of Cama Motors, she cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that on 1-1-1977 the assessee became the sole proprietor of the said firm would not justify the income-tax authorities to hold that the said loan was advanced to the assessee and that too on 1-1-1977. He emphasised the point that the same amount should not be held to have been advanced to two different entities on two different dates. Again, according to the learned counsel for the assessee, the applicability of the provisions of section 2(22)(e), could have been considered, if at all, when the loan was first given to Victory Wood Works on 26-12-1975 and not on any other subsequent date. His third line of attack was that even assuming for the sake of arguments that the provisions of section 2(22)(e), were applicable in the assessee's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 either case possesses accumulated profits;" As rightly pointed out on behalf of the assessee that these provisions have to be read along with the provisions of clause (32) of section 2, which reads as under : " 'person who has a substantial interest in the company', in relation to a company, means a person who is the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otors that the assessee was not holding shares 'carrying not less than twenty per cent of the voting power' and, therefore, she cannot be treated to be a 'person who has substantial interest in the company' (viz., Cama Motors) within the meaning of the provisions of section 2(32). In this view of the matter, I am of the opinion that the first two submissions made on behalf of the assessee are well founded and should be accepted. Apart from this, I also find considerable force in the other two submissions made on behalf of the assessee. It is pertinent to note that the assessee's previous year for the year under consideration started from 1-4-1977 and ended on 31-3-1978. Since the conversion of Victory Wood Works from partnership to propriet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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