Deemed dividend from shareholder loans depends on accumulated profits on the date of each advance, not later profits.

A loan or advance to a shareholder is treated as deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922 only to the extent of accumulated profits existing on the date of each advance. Current profits cannot be counted as accumulated profits for this purpose. As the tax authority did not compute the deemed dividend by reference to accumulated profits on each loan date, the assessments could not stand, and the issue was answered in favour of the assessee.

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Issues: Whether, for the purpose of treating a loan or advance to a shareholder as dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922, the company's accumulated profits are to be determined on the date of each loan or advance.

Analysis: The provision deems a loan or advance to a shareholder to be dividend only to the extent of the company's accumulated profits. The controlling principle is that the relevant accumulated profits must be ascertained on the date on which each loan or advance is made, and current profits cannot be treated as accumulated profits. Since the income-tax authority did not compute the deemed dividends by reference to accumulated profits on each date of advance, the assessments could not stand.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: For section 2(6A)(e) of the Indian Income-tax Act, 1922, a loan or advance to a shareholder can be treated as deemed dividend only to the extent of accumulated profits existing on the date of that loan or advance.

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