Sabyasachi Mukharji, J.
1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. This reference relates to the assessment year 1958-59, the relevant previous year of which ended on 31st May, 1958. The assessee is the managing director of S. B. Electric Mart Pvt. Ltd. in which he held at the relevant time 950 ordinary shares out of 2,000 ordinary shares of Rs. 100 each being issued and subscribed capita] of the company. In the balance-sheet as on 31st December, 1957, there was an entry indicating as follows :
Figures for the previous yearLoan and AdvancesFigures for the current year.
Advance to directorRs.Rs.Rs.Head Office 61,70214,556.1416,315.69 457 Branch 62,159 1,759.55
(The maximum due at any time during the year at head office is Rs. 1,50,000 and at branch Rs. 1,759.55).
2. Out of the above figures the amount outstanding from the assessee was rupees 13,385. The Income-tax Officer considered the applicability of Section 2(6A)(e) of the Indian Income-tax Act, 1922, under which any payment by a company in which the public were not substantially interested within the meaning of suction 23A of any sum by way of advance or loan to a shareholder to the extent to which the company possessed accumulated profits would be deemed to be dividend. The Income-tax Officer calculated the accumulated profits to be Rs. 30,175. As the maximum amount drawn exceeded this amount, he restricted the application of Section 2(6A)(e) to Rs. 30,175 and included the said sum in the assessment. The assesseeappealed to the Appellate Assistant Commissioner contending that the liability should be restricted to the loan of Rs. 13,385 outstanding on the 31st December, 1957, or in the alternative the assessee could be taxed to the extent of his interest proportionate to his shareholding. The calculation of the accumulated profit was also challenged before him. The Appellate Assistant Commissioner confirmed the calculation of accumulated profits but reduced the amount taken to be dividend to 19/40 of the accumulated profits as the assessee held 19/40 out of the total issued capital of the company. Against this order both the assessee and the department appealed to the Tribunal. The assessee's appeal related to the calculation of accumulated profits. The Tribunal modified the Income-tax Officer's calculation thereof by taking Rs. 18,067.57 as the accumulated profit. There was no dispute thereafter on this aspect and we are not concerned in this reference with that question. So far as the appeal of the revenue was concerned, the challenge was to the direction of the Appellate Assistant Commissioner that only 19/40 of the accumulated profits would be taxed in the hands of the assessee. The Tribunal held that the view taken by the Appellate Assistant Commissioner was more equitable and as such confirmed the order of the Appellate Assistant Commissioner on this aspect. In the aforesaid circumstances of the case under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loan advanced to the assessee by S. B. Electric Mart Private Ltd. was assessable as dividend under Section 2(6A)(e) of the Indian Income-tax Act, 1922, only to the extent of 19/40 of the accumulated profits of the said company and not to the extent of the whole of the said profits ?'
3. In this reference we are concerned with the construction of Section 2(6A)(e) of the Indian Income-tax Act, 1922. The history and purposeof introduction of the said provision have been discussed by the SupremeCourt in the case of Navnit Lal C. Javeri v. K. K. Sen, : 56ITR198(SC) where the SupremeCourt was concerned with the vires of the Section. In deciding the vires ofthe section the Supreme Court analysed the history and the need for introduction of the section and at pages 205 and 206 of the report dealt with thepurpose intended to be fulfilled by the section. The Supreme Court observedthat the legislature had realised that private controlled companies generallyadopted the device of making advances or giving loans to their shareholderswith the object of evading payment of tax, and it was to meet this mischiefthat a fiction was created by which the amount ostensibly and clearlyadvanced to shareholders as loan could be treated in reality for taxpurposes as the payment of dividend to him.
4. For the purpose of avoiding this mischief of which the Supreme Court spoke, this fiction was created by Section 2(6A)(e). In this connection it would be relevant, therefore, to set out the provision of the said section :
'2. In this Act, unless there is anything repugnant in the subject or context:--
(6A) 'dividend' includes--.....
(e) any payment by a company, not being a company, in which the public are substantially interested within the meaning of Section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits,
but 'dividend' does not include--.....
(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of Clause (e), to the extent to which it is so set off;
Explanation.--The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1 st day of April, 1946, or after the 31st day of March, 1948 (and before the 1st day of April, 1956).'
5. It appears, therefore, that Section 2(6A)(e) creates a comprehensive fiction. It includes in the expression of the term 'dividend', any payment made by a company to a shareholder of the present type of which we are concerned. But it limits its operation to the extent to which the company possesses the accumulated profits. Therefore, the company must not be only a company in which the public are not substantially interested. It must also be a company which has sufficient accumulated profit at the time of making the payment. If these two conditions were satisfied, then 'any payment' made to the shareholder as loan would be treated as dividend to the extent the company possesses accumulated profits. The section speaks of 'any payment' meaning thereby every payment made by the company which falls within these categories mentioned in the section. The section also does not speak of any proportionate part of the payment. Therefore, the entirety of the payment in the hands of the shareholder to the extent the company possesses accumulated profit would be deemed to be dividend in his hands. The position seems to be that if a shareholder borrows money and is paid advances or loans in excess of the accumulated profit then the amount which would be treated as dividend in his hands would be limited to the extent of the accumulated profit. If, on the other hand, a shareholder takes advances or loan or the company advances loan to the shareholder less than the accumulated profit then the entirety of the loan to the extent the company has accumulated profit would be treated as dividend in the hands of the shareholder. In support of the view we have taken, reliance may be placed on the observations of the Madras High Court in the case of K. M. S. Lakshmana, Aiyar v. Additional Income-tax Officer  40 ITR 169; and the observations of the Bombay High Court in the case of Commissioner of Income-tax v. P. K. Badiani, , : 85ITR230(Guj) and the observations of the Gujarat High Court in the case of Commissioner of Income-tax v. Mayur Madhukant Mehta : 76ITR369(Bom) ;. Our attention was also drawn to the decision in the case of Tarulata Shyam v. Commissioner of Income-tax, , : 82ITR485(Cal) but inasmuch as the said decision dealt with different problems, it is not necessary for us to refer to the said decision.
6. In the aforesaid view of the matter it appears to us that the view taken by the Tribunal and the Appellate Assistant Commissioner cannot be sustained. In the instant case, the accumulated profit has been determined at Rs. 18,067.57. The loan which the present assessee took from the company was Rs. 13,385. In the premises, the said loan was less than the accumulated profit. That being so, to the extent of accumulated profit the entirety of the loan, that is to say, Rs. 13,385, would be dividend assessable under Section 2(6A)(e) of the Indian Income-tax Act, 1922, in the hands of the assessee.
7. We answer, therefore, by saying that, in the facts of this case, the sum of Rs. 13,385 would be assessable as dividend under Section 2(6A)(e) of the Indian Income-tax Act, 1922, in the hands of the assessee.
8. In the facts of this case, there will be no order as to costs.
R.N. Pyne, J.
9. I agree.