Reassessment and deemed dividend: substantive law governs past-year liability, but no addition lies without proof of payment to the assessee.

In reassessment under sections 147 and 148, liability is determined by the substantive law applicable to the relevant previous year, so section 12(1B) of the 1922 Act may still govern if it applied to the charge, and the absence of an identical 1961 provision does not by itself exclude it. On the deemed-dividend issue, a mere accounting entry is insufficient without evidence that the payment was made to the assessee or reached him as a loan or advance; where the record shows payment to a firm and no link to the individual, the statutory charge is not established. A wrong reference to section 2(22)(e) does not cure that factual deficiency.

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Issues: (i) Whether, in reassessment proceedings initiated under sections 147 and 148 of the Income-tax Act, 1961, the Tribunal was justified in holding that section 12(1B) of the Indian Income-tax Act, 1922 could not be invoked. (ii) Whether the sum of Rs. 12,26,206 could be assessed as the income of the assessee as deemed dividend, and whether the reference to section 2(22)(e) of the Income-tax Act, 1961 in the assessment order was a curable error.

Issue (i): Whether, in reassessment proceedings initiated under sections 147 and 148 of the Income-tax Act, 1961, the Tribunal was justified in holding that section 12(1B) of the Indian Income-tax Act, 1922 could not be invoked.

Analysis: The reassessment was reopened under the 1961 Act, but the liability to tax had to be determined by the substantive law applicable to the relevant previous year under the 1922 Act. Section 12(1B) of the 1922 Act, if applicable, could govern the charge, and a mere change in procedural law did not exclude the older substantive provision. The Tribunal was therefore not correct in treating the absence of an identical provision in the 1961 Act as determinative.

Conclusion: The answer on this issue was in the negative and against the assessee's case on the legal point, in favour of the Revenue.

Issue (ii): Whether the sum of Rs. 12,26,206 could be assessed as the income of the assessee as deemed dividend, and whether the reference to section 2(22)(e) of the Income-tax Act, 1961 in the assessment order was a curable error.

Analysis: On the facts found, no material showed that any payment was made to the assessee by the company or that the amount in question reached him as a loan or advance. The record indicated payment to the firm, and there was no evidence connecting the bookkeeping entry with the assessee personally. The finding of the Tribunal was supported by the material on record and was not shown to be perverse. In these circumstances, the wrong reference to section 2(22)(e) did not alter the factual deficiency in the Revenue's case.

Conclusion: The answer on this issue was in the affirmative in favour of the assessee and against the Revenue.

Final Conclusion: The reference was disposed of by answering the questions partly for the Revenue and partly for the assessee, while leaving the Tribunal's factual finding that the amount was not proved to have been paid to the assessee undisturbed.

Ratio Decidendi: In reassessment proceedings, the substantive law applicable to the relevant previous year governs liability, but a deemed-dividend addition cannot stand without evidence that the payment was made to the assessee or otherwise brought within the statutory charge.

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