1973 (9) TMI 50 - HC - Income Tax

Court: Entire amount to assessee as dividend income. Accumulated profits can be within a single year.

Commissioner Of Income-Tax, Uttar Pradesh Versus Roshan Lal (Decd.) By Smt. Lajwanti Devi

Commissioner Of Income-Tax, Uttar Pradesh Versus Roshan Lal (Decd.) By Smt. Lajwanti Devi - [1975] 98 ITR 349 Issues:Interpretation of section 2(6A)(e) of the Indian Income-tax Act, 1922 regarding treatment of a loan as dividend in the hands of the assessee for a specific assessment year.Analysis:The case involved a reference from the Commissioner of Income-tax regarding the treatment of a loan amount as dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922. The question was whether a specific sum out of a total loan taken by the assessee from a limited company should be considered as dividend income. The company had advanced a sum of Rs. 74,642 to the assessee, and the Income-tax Officer treated the entire amount as dividend income. The Appellate Assistant Commissioner partially allowed the appeal, holding that the amount could not be deemed as accumulated profits of the company. The Income-tax Appellate Tribunal further allowed the department's appeal in part, determining that only a portion of the amount would be considered as dividend income. The key issue was whether the accumulated profit of the company should be calculated at the time of the loan or after deducting subsequently declared dividends.The Tribunal's decision was based on the interpretation of section 2(6A)(e) of the Act, which defines dividend to include payments made by a company to a shareholder out of accumulated profits. The Tribunal held that only a specific amount should be treated as dividend income, considering the profits available after deducting the declared dividend. The Tribunal rejected the argument that the subsequent declaration of dividend should not affect the nature of the funds available at the time of the loan. The court referred to the case of First Income-tax Officer v. Short Brothers (P.) Ltd., where the Supreme Court interpreted 'accumulated profits' to include all distributable profits available to a company till a specific date, which in this case was the date of the loan.The court disagreed with the Tribunal's decision and held that the entire amount paid to the assessee should be considered as dividend income under section 2(6A)(e) of the Act. The court emphasized that accumulated profits do not necessarily need to be carried forward from year to year and can accumulate even within a single year. Therefore, any amount available for distribution as profits on a specific date should be considered as accumulated profits. As no appearance was made for the respondents, no costs were awarded.