Decided on October 04,1972

Commissioner Of Income Tax, Bombay City -Ii Appellant


K.K. Desai, C.J. - (1.) In this reference under Sec. 66(1) of the Indian Income Tax Act, 1922, the two questions law referred to us read as under : "1. Whether, on the facts of the case, there was loan or advance of Rs. 2,55,135 within the meaning of Sec. 12(1B) read with Sec. 2(6A)(e) by the company to the shareholder ?
(2.) If the answer to question No. 1 is in the affirmative, whether the phrase 'accumulated profits', as used in Sec. 2(6A)(e) means such profits as disclosed by the company's balance -sheet or such disclosed profits subject to adjustments as required by the Income Tax Act - 2. The facts which require to be noticed are as follows : The questions relate to the assessment year 1955 -56. The relevant previous year is the year ending 31st March, 1955. The assessee was the shareholder and director of Purshottam Mathuradas and Co. Ltd. (hereinafter referred to as "the company"). There is no dispute about the fact that in connection with the questions which arose between the parties the provisions of Sec. 23A of the Act were applicable to the company.
(3.) The assessee carried on business in the firm name and style of Messrs. Khimji Nagji and Co. and also in the name of "Shri Jamnadas Khimji" (his own name). The assessee had dealing with the company in both the above names from prior to 1st October, 1952. The ledger accounts of these dealings between 1st October, 1952, to 31st March, 1954, are in annexure "A" to the statement of the of the case. Having regard to the position of the assessee in these accounts with the company in connection with the assessment year 1955 -56, the Income Tax Officer was of the view that the provisions in Sec. 12(1B) read with Sec. 2(6A)(e) of the Income Tax Act were applicable. He found that at the foot of the account of the firm of Messrs. Khimji Nagji and Co. there was a debit balance of Rs. 2,55,135 as on 1st April, 1954. He also found that there was a large credit balance in favour of the assessee in the account in the account maintained in his own name (Shri Jamnadas Khimji). Upon making appropriate deductions he found that the sum of Rs. 2,55,135 was the net debt and debit balance due by the assessee to the company as on 1st April, 1954. In connection with his view that this debit balance was "loan" advanced by the company of the assessee and accordingly the same was divided income of the assessee, the question was, if the loan was advanced from out of the accumulated profits. For ascertaining the accumulated profits he held by referring to the reserve fund and depreciation fund mentioned in the balance -sheet of the company that the loan was from out of the accumulated profits. He, therefore, held that the above sum Rs. 2,55,135 was dividend income of the assessee and proceeded to assess the assessee to Income Tax on that footing.;

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