Sabyasachi mukharji, J. - (1.) The assessee is a private limited company. During the financial year 1905-56, which is the assessee's accounting year for the assessment year 1956-57, the assessee advanced a sum of Rs. 27,506 to Sri Sriniwas Fatehpuria, a shareholder and a director of the company. The original assessment for the year 1956-57 on the asscssee-company was made on the 13th February, 1958. Subsequently, in the course of the assessment for the year 1957-58, the Income-tax Officer discovered that the assessee had made the aforesaid loan to one of its shareholders and directors. Action was, therefore, taken by the Income-tax Officer under Section 34 of the Indian Income-tax Act, 1922, and as the Income-tax Officer found that the assessee-company had sufficient accumulated profits on the first day of the financial year 1955-56, to cover the advance of Rs. 27,506 aforesaid, he treated the aforesaid sum of Rs. 27,506 as dividend paid to Sri Sriniwas Fatchpuria during the financial year 1955-56. As a consequence of treating the sum of Rs. 27,506 as dividend paid by the assessee during the financial year 1955-56, the corporation tax rebate granted for the aforesaid year became liable to be further reduced, according to the Income-tax Officer. Therefore, the Income-tax Officer charged additional corporation tax on Rs. 5,157 in the order passed under Section 23(3)/34 for the assessment year 1956-57.
(2.) There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that during the relevant accounting year Srini was Fatehpuria held 250 out of the total issued shares of 1,051 of the assessee-company. On examining the account of Sri Sriniwas Fatehpuria with the assessee-company, the Appellate Assistant Commissioner found that an amount of Rs. 27,506 represented the excess of credits over debits in this account. The Appellate Assistant Commissioner, thererfore, held that the advances to Sri Fatehpuria amounting to Rs. 27,506 had been rightly considered by the Income-tax Officer as dividend in the hands of Sri Fatehpuria in view of the provisions of Section 2(6A)(e) of the Indian Income-tax Act, 1922. He, accordingly, upheld the order of the Income-tax Officer under Section 34 reducing the corporation tax rebate granted to the assessee in the original assessment.
(3.) There was a further appeal before the Tribunal. The Tribunal held that the withdrawal of rebate under the second proviso to paragraph D of Part II of the Finance Act, 1956, was in respect of any dividend distributed by a company to its shareholders in excess of 6% of its paid up capital. The Tribunal was further of the opinion that a loan or advance to a solitary shareholder could not be said to be a distribution by the company of any dividend to its shareholders, as contemplated by the second proviso to paragraph D of Part II of the Finance Act, 195G. The Tribunal, therefore, was of the opinion that the order reducing the corporation tax rebate was improper and allowed the appeal of the assessee.;