TaxTMI 
TaxTMI 
1962 (3) TMI 83
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.... for the amount of principal and interest due by her. But he failed to discharge the debt and of course continued to be the shareholder of the company. It is in this state of affairs that sections 2(6A)(e) and 12(1B) of the Act came into the statute book under the Finance Act, 1955, with effect from 1st April, 1955. A reference to the section will be made later. In the assessment of Sundaram Chettiar under the Income-tax Act for the assessment year 1955-56 relevant to the accounting year ended March 31, 1955, the Income- tax Officer treated the loan outstanding from him to the company as his dividend income and brought that amount to tax. The assessee unsuccessfully preferred appeals to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal. These appellate authorities also took the view, in agreement with that of the Income-tax Officer, that under section 12(1B) of the Act the outstanding loan due to the company was taxable. On an application filed by the assessee for reference under section 66(1) of the Act, the following question has been referred to us by the Tribunal: "Whet....
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....facts and in the circumstances of the case the sum of Rs. 12,842 was liable to be treated as dividend within the meaning of section 2(6A)(e) read with section 12(1B) of the Indian Income-tax Act?" The amount of Rs. 12,842 has been arrived at by the Income-tax Officer in the following manner. He observed in his assessment order: "Inasmuch as he (assessee) has not discharged the loan before the extended time limit of June 30, 1955, it has to be treated as a loan within the meaning of section 12(1B) of the Act, to the extent of the accumulated profits. The accumulated profits will be as under; As on June 30, 1954. Rs. Taxation and general reserve 38,388 Balance in the profit and loss account 2,175 Total 40,563 Less: Rs. Income-tax paid 816.00 S. 23A applied for the years 1974-48 to 1950-51 26,905.00 27,721 Balance available for distribution 12,842 The question raised is whether section 12(1B) of the Act can be invoked by the assessing auth....
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....tax Act is only to tax the income of one year, that is, "the previous year" relating to the "assessment year", which has been defined in the Act. Though the loans might have been advanced long prior to April 1, 1955, this section treats them as dividends under section 2(6A) and deems them to have been received by the assessee as such dividends in the previous year relevant to the assessment year ending on March 31, 1956, if such loans remained outstanding on the first day of such previous year. As considerable hardship was created by this statutory provision by bringing to tax loans advanced years ago, the Central Board of Revenue issued a circular to the effect that outstanding past loans would not be taxed as dividends if they are genuinely repaid to the company before June 30, 1955, and the moneys were not again re-lent by the company to any other party. The assessees in these cases did not repay the loans in spite of the circular of the Central Board of Revenue for reasons best known to themselves. Now the conjoint application of section 2(6A)(e) and section 12(1B) requires the following elements to be present: 1. Payment by a company (not being a company in which the public....
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.... the caption "payment" as follows, at page 1318: "Payment in fact is an actual payment from the payer to the payee; payment in law is a transaction equivalent to actual payment." We are unable to agree with the contention urged on behalf of the assessees that inasmuch as no sum of money was received in cash or in specie by the assessees from the companies, there can be no payment within the meaning of section 12(1B) of the Act. The substantial requirement to attract the applicability of section 12(1B) is that there should be the jural relationship of debtor and creditor between the shareholder and the company. The Income-tax Officer has proceeded on the basis that the relevant date to ascertain the accumulated profits of the company would be the commencement of the previous year relating to the assessment year 1955-56. This however is not the correct view of the matter. It is the date of payment by the company to the shareholder of the loan or advance that should be taken into account for the purpose of ascertaining the extent of its taxability in relation to the accumulated profits of the company. If the amount paid is far in excess of such accumulated profits the excess cannot....