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Issues: Whether, for purposes of deemed dividend under section 2(6A)(e) of the Indian Income-tax Act, 1922, the accumulated profits of a company are to be ascertained on the date of the loan or advance to the shareholder, and whether a later declaration of dividend reduces the amount treatable as dividend.
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 expression refers to profits available for distribution as on the date of payment, and not to profits remaining after a later dividend declaration. Clause (iii) of section 2(6A) shows that a subsequent dividend may be set off against an amount already treated as dividend under clause (e), which indicates that the later declaration does not change the character of the earlier payment. Accumulated profits may arise within a single year and need not be carried forward from year to year. The distributable profits available when the loan was made therefore constituted the relevant accumulated profits.
Conclusion: The entire amount of the loan to the extent of the company's accumulated profits on the date of payment was liable to be treated as dividend, and not merely the balance left after the subsequent declaration of dividend.
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