1. In this reference under Section 66(1) of the-Indian Income-tax Act, 1922, we are concerned with the following question of law referred to the High Court by the Tribunal :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only 25 per cent. of the accumulated profits of Messrs. K. C. Ghattack & Sons Pvt. Ltd., in the accounting year relevant to the assessment year 1952-53, could be treated as dividend within the meaning of Section 2(6A)(e) of the Indian Income-tax Act, 1922, and that accordingly only Rs. 1,001 out of the total advance of Rs. 29,563 made by the said company to the assessee in the said accounting year could be brought to tax by virtue of Section 12(1B) of the said Act for the assessment year 1955-56?'
2. As there is no dispute regarding facts in this case it is not necessary to state the same in any detail.
3. In this reference we are concerned with the assessment year 1955-56, of which the previous year is the Bengali Samvat year 1361 B.S., which ended on 13th April, 1955. The assessee, Prantosh Ghattack and others, were assessed in the status of legal heirs of late Bhabatosh Ghattack for the assessment year under reference. Upon the death of the said Prantosh Ghattack during the pendency of this reference, Sm. Arati Debi as heiress and legal representative of the said Prantosh Ghattack for herself and her minor daughters has been joined as a respondent in this reference. Late Bhabatosh Ghattack was a shareholder in Messrs. K. C. Ghattack & SonsPvt. Ltd., holding 25 per cent. of its issued shares. The said company is a company in which the public are not substantially interested. The Income-tax Officer found, while scrutinising the records of the said company that the assessee had made large withdrawals by way of loans from the company and on the 1st April, 1955, such loans amounted to Rs. 30,666. According to the Income-tax Officer, since on that date the said company had accumulated profits to the tune of Rs. 78,071, the whole of the outstanding advances to the assessee, namely, Rs. 30,666, were to be treated as his dividend income within the meaning of Section 2(6A)(e) read with Section 12(1B) of the Indian Income-tax Act. As, in the opinion of the Income-tax Officer, the said dividend of Rs. 30,666 had escaped assessment, he initiated proceedings under Section 34 of the Indian Income-tax Act, 1922, and after giving opportunities to the assessee of being heard, the Income-tax Officer completed the supplemental assessment by including the gross amount of dividend of Rs. 41,581 and gave tax credit of Rs. 10,915 representing the difference between Rs. 41,581 and Rs. 30,666.
4. Being aggrieved by the order of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner against the said order. The Appellate Assistant Commissioner was of the view that the amount of accumulated profits available for distribution as dividend was Rs. 64,106 and that out of this sum, a sum of Rs. 9,286 had already been treated as dividend in the hands of Messrs. I. T. Ghattack and others leaving the balance of Rs. 54,280. On this basis, the Appellate Assistant Commissioner held that it would be proper to consider Rs. 27,140 being 1/2 of the aforesaid sum of Rs. 54,280 as dividend in the hands of the assessee.
5. Being dissatisfied with the decision of the Appellate Assistant Commissioner, the assessee preferred a second appeal to the Tribunal. Before the Tribunal the assessee relied on the decision of the Tribunal for the very same assessment year, namely, 1955-56, in the case of two other shareholders, named, Ishanitosh Ghattack and others and Shibanitosh Ghattack and others. In those two cases, the Tribunal had occasion to consider the interpretation of Section 2(6A)(e) read with Section 12(1B) of the Act and on that basis held that the amounts of loan to be treated as dividend should be confined to the assessee's interest in the accumulated profits on the basis of its shareholdings in the company and that in respect of loan given by the company prior to assessment year 1955-56 the amount of dividend that could be included by virtue of Section 12(1B) should be limited to the assessee's interest in the accumulated profits of the year in which the loan had been actually given. It was found by the Tribunal that in the year 1952-53 a loan of Rs. 29,563 was made to the assessee and in that year the accumulated profit of the company was Rs. 4,003 and as the assesseewas only interested to the extent of 25 per cent. in the shareholding of the company, only one-fourth of that amount would be liable to be taxed as dividend under Section 2(6A)(e) read with Section 12(1B). Regarding the assessment year 1955-56, the Tribunal held that the total amount of advance was Rs. 7,1 65 but a sum of Rs. 6,052 was repaid, thereby leaving a balance of Rs. 1,113 and only that amount is liable to be taxed as dividend. We are, however, not concerned with this point in this reference.
6. Thereafter, at the instance of the revenue the Tribunal referred the question of law set out hereinbefore under Section 66(1) of the Indian Income-tax Act, 1922, to the High Court.
7. The short point that arises for consideration in this reference is whether the advance made to the assessee in the assessment year 1952-53 to the extent of the total amount of accumulated profit of that year or only a portion thereof which is equal to the assessee's one-fourth share of the accumulated profit (i.e., Rs. 1,001 in the instant case) should be taxed as dividend in the year under consideration, viz., assessment year 1955-56, under Section 2(6A)(e) read with Section 12(1B) of the Indian Income-tax Act, 1922. While considering Section 2(6A)(e), Sabyasachi Mukharji J. in the case of Commissioner of Income-tax v. Bhagwat Tewari : 105ITR62(Cal) , observed as follows :
'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 loans 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.'
8. Considering the point involved in this reference in the light of the above observation, it appears to us that the advance made to the assessee in the assessment year 1952-53 to the extent of the accumulated profit of that year, viz., Rs. 4,003, and not to the extent of 25 per cent. (being the one-fourth share of the assessee) of the said amount of accumulated profit would be taxable as dividend under Section 2(6A)(e) read with Section 12(1B) of the said Act in the assessment year 1955-56. In the above view of the matter, the decision of the Tribunal cannot be supported. Therefore, our answer to the question referred is in the negative and in favour of therevenue. In the facts and circumstances of this case, we do not make any order as to costs.
9. I agree.