Embezzled company funds are not deemed dividend or taxable perquisite without a legal basis for receipt.
A sum found to be criminally misappropriated by a director was not treated as a loan, advance, or deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922, because the statutory condition of a company payment by way of loan or advance was absent. The same factual finding also defeated taxation under section 2(6C)(iii), since that provision applies only where a benefit or perquisite is obtained from the company on some legal or arranged basis; unauthorised embezzlement does not qualify. On that reasoning, the reassessment additions failed and the amounts were treated as embezzled funds, not taxable corporate benefits.
Issues: (i) Whether the sum of Rs. 3,21,173 could be treated as dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922. (ii) Whether the sums of Rs. 45,000 and Rs. 63,000 were taxable as income under section 2(6C)(iii) of the Indian Income-tax Act, 1922.
Issue (i): Whether the sum of Rs. 3,21,173 could be treated as dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922.
Analysis: The amount had already been held in an earlier reference to represent money criminally misappropriated by the director and not a payment by way of loan or advance by the company. That finding governed the reassessment as well, and the statutory condition for treatment as deemed dividend was therefore absent.
Conclusion: The amount could not be treated as dividend, and the issue was answered in favour of the assessee.
Issue (ii): Whether the sums of Rs. 45,000 and Rs. 63,000 were taxable as income under section 2(6C)(iii) of the Indian Income-tax Act, 1922.
Analysis: Section 2(6C)(iii) covers a benefit or perquisite obtained from a company, and the word "obtained" connotes some arrangement or legal basis for receipt. A mere unauthorised taking, embezzlement, or criminal misappropriation does not amount to a benefit or perquisite obtained from the company. Since the factual finding was that the amounts were embezzled and not received as a bona fide loan or payment, the section had no application.
Conclusion: The sums were not taxable under section 2(6C)(iii), and the issue was answered in favour of the assessee.
Final Conclusion: The reassessment additions failed on both questions because the amounts in question were not shown to be loans, advances, or other taxable benefits obtained from the company; they were treated as embezzled funds instead.
Ratio Decidendi: A sum unauthorisedly taken from a company by embezzlement or criminal misappropriation is not a benefit or perquisite "obtained" from the company for purposes of section 2(6C)(iii), and cannot be taxed as a deemed dividend or similar corporate benefit absent a legal or equitable claim to receive it.