Bombay High Court
Commissioner Of Income-Tax vs Nagindas M. Kapadia on 8 December, 1988
Equivalent citations: [1989]177ITR393(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT T.D. Sugla, J.
1. The only question of law referred to us at the instance of the Department in this reference reads thus:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in computing the 'dividend' under section 2(22)(e) restricting 'advances or loans' to cash transactions only and accordingly determining such dividend at Rs. 28,500 and Rs. 10,000, respectively ?"
2. It is common ground that the assessee is a shareholder in the company styled as Magnalal Chhaganlal Pvt. Ltd., and "is a person who has substantial interest in the company" for the purpose of section 2(22)(e) of the Income-tax Act. He also carries on a proprietary business in the name and style of Rainbow Paints. The company maintains a running account in the name of Rainbow Paints and during the previous years relevant to the assessment years 1968-69 and 1969-70 the years involved herein, the running account disclosed cash payments by the company to the assessee at Rs. 1,31,672 and Rs. 3,86,000 in the respective years. The Income-tax Officer held that the payments would be deemed dividend income within the meaning of section 2(22)(e). The Appellate Assistant Commissioner reduced the addition to Rs. 26,262 and Rs. 40,675 which represented the peak of the payments in the two years. The Tribunal has, on going through the details of the account, found that payments other than payment of Rs. 28,500 in the assessment year 1969-70 and other than Rs. 10,000 in the assessment year 1969-70 were made as advances towards the purchases to be made by the company from the assessee. Accordingly, the Tribunal held that only the sum of Rs. 28,500 in the assessment year 1968-69 and Rs. 10,000 in the assessment year 1969-70 represented payments or advances within the meaning of section 2(22)(e) of the Income-tax Act and could be treated as deemed dividend income.
3. Shri Bhatia, learned counsel for the Department has not disputed the finding of the Tribunal in this behalf. If the finding is not in dispute, the answer to the question is obvious because it is only the payments or advances to the extent of accumulated profits that can be treated as loans or advances within the meaning of section 2(22)(e) and this is what the Tribunal has done.
4. In the above view of the matter, the question is answered in the affirmative and in favour of the assessee. No order as to costs.