TARULATA SYAM AND ORS. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

Citation: [1977] 3 S.C.R. 697 · Decided: 28-04-1977 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

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Judgment (excerpt)

TARULATA SYAM AND ORS. 
v. 
COMMISSIONER OF INCOME-TAX, WEST BENGA1" 
April 28, 1977 
697 
A 
, 
{P. N. BHAGWATI, R. S. SARKARIA AND S. MURTAZA FAZAL ALI, JJ.] 
B 
Indian Income Tax Act, 1922-S. 2(6A)(e)-Scope of. 
Co1npany a s. 23A Co111pany in which public are not substantiq/.ly intertsted 
-Had accunut!ated profits-Gave loan/ to a shareholder-Loan repaid before 
!he end of tlir financial year-Loun if dividend withiln s. 2(6A)(e). 
Under section 2(W\) (e) of the Indian Income-tax Act, 1922, the term divi-
dend includes any payment by a compa·ny not being a company in v,;hich 
the public are substantially interested \Vithin the meaning of s. 23A of any 
sum (whether as represcntirw: a part of the assets of the company or other-
wise) by way of advance or Joan to a shareholder or a•ny payment by any 
such company on behalf or for the individual benefit of a shareholder to the 
extent to \Vhich the company in either case possesses accumulated profits. 
According to s. 12(IA) of the Act, income from other sources include'> 
dividends. 
Sub-section (1B) of s. 12 provides any payment by a conl.pany 
to a shareholder by way of advance or loan which would have been treated 
.as dividend within the meaning of s. 2(6A)(e) in any previous year relevant 
io any assessment year prior to the assessment year ending on the 31st day 
-Of March, 1956 had that clause been in force in that vear, shall be treated 
a<S a dividend received by him in the previous year relevant to the assess-
ment year ending on the 31st day of MarCb, 1956, if such loan or advance 
remained outstanding on the first day of such previous year. 
The provisions 
of s. 2(6A) (e) and s. 12(1B) had been borrowed and adopted with certain 
.alterations from s. 108(1) of the Commonwealth Income Tax Assessment 
Act of Australia the last limb of which provided that payment to a share-
holder by \Vay of advance or loan was to be treated as dividend paid by 
the company on the last day of the year of income of the company in \Yhich 
payment \Vas n1ade. 
The appellant-assessce waG a shareholder and Managing Director 
of 
a 
Private Ltd. Company. 
In the calendar year 1956 (assessment year 1957-
58), the assessee \vithdrew in cash from the con1pany n• sum of Rs. 4.97 
lakhs, \vhich was less· than the accumula-ted profits of the company. 
Before 
the end of the year, the assessec repaid the whole amount. Deducting a sun1 
of Rs. 1.59 lakhs \Vhich was credited to the assessee's account by way of 
dividend in the company's books, the Income-tax Officer treated the balance 
of Rs. 2.72 lakhs as dividend income in the assessee's hands and grossed up: 
the amount under s. 16(2). 
On appeal, the Accountant Member Of the Appellate Tribunal ·held that 
any payment made as envisaged in s. 2(6A)(e) became dividend and must 
be treated as the assessee's income and no subsequent repayment could take 
it out of the mischief pf the provision. 
The Judicial Member on the otMr 
hand held that since total income of the assessee during the relevant previous 
year could be comput~d and assessed only at the end of that year any ad\·~nce 
or loan taken during the interim periods of the previous year would have to 
be ignored. 
On reference the President agreed \vith the Accountant Member. 
The J-Iigh Court ans\vered the reference in favour of the Revenue. 
, 
c 
D 
E 
F 
G 
H 
'698 
SUPREME COURT REPORTS 
(1977] 3 S.C.R. 
A 
were taken and (ii) the last limb of s. I 08 (I ) of the Australian Act should 
be read into the Indian Act because what was explicit in. s. 
108(1) of the 
' 
Australian Act is implicit in s. 2(6A) (e) and s. 12(1B) of the Indian Act. 
B 
c 
D 
Distnissing the appeal. 
HELD: The fiction created by s. 2(6A)(e) read with s. 12(1B) of the 
Act is attracted as soon as all the conditions necessary for its application 
exist in a case. 
[707' C] 
1. In Navnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Co1n1nissivner 
!11co11ie-tax [1965] 1 SCR 909, this Court he1d that the combined effect of 
these two ·provisions is that three kinds of payments made to a shareholder 
of a company are treated as taxable dividend to the extent of the accumulated 
profits held by· the company, namely, payments made to the shareholder by 
\Vay of advance or Jo~·n. payments made on his behalf and payments made· 
for his individual benefit. 
The five conditions to he satisfied are : (i) The 
company n1ust be one in which the public are not substantially interested 
within the meaning of s. 23A;

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