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

CIVIL APPEAL No. 147/1972Supreme Court[1977] 3 S.C.R. 69728 April 1977Bench: 3 JudgesAuthor: P.N. BHAGWATI, R.S. SARKARIA, S. MURTAZA FAZAL ALI SYAM AND ORS.14 pages
AI SummaryDismissed

What were the facts?

The assessee, Tarulata Syam, was a shareholder and Managing Director of a private limited company. In the calendar year 1956 (Assessment Year 1957-58), she withdrew Rs. 4.97 lakhs from the company, which was less than its accumulated profits. She repaid the entire amount before the end of the financial year. The Income-tax Officer treated Rs. 2.72 lakhs (after deducting Rs. 1.59 lakhs credited as dividend) as dividend income in the assessee's hands and grossed it up under Section 16(2). The Appellate Tribunal had differing opinions: the Accountant Member held that repayment did not negate the dividend treatment, while the Judicial Member believed interim loans should be ignored. The High Court ruled in favour of the Revenue.

What did the Supreme Court hold?

The Supreme Court held that the fiction created by Section 2(6A)(e) read with Section 12(1B) of the Act is attracted as soon as all the necessary conditions for its application exist. The Court found that the company was a controlled company, the assessee was a shareholder, the company had accumulated profits exceeding the amount paid, and the company's business was not money lending. The Court rejected the assessee's argument to import the last limb of Section 108(1) of the Australian Act, stating that the Indian Legislature deliberately omitted such words. The language of the Indian sections is clear and unambiguous, and judicial interpretation cannot amend the statute. The Court emphasized that the previous year is the unit of time for assessment, and the moment a dividend, actual or deemed, is received, income taxable under the residuary head arises. Therefore, the statutory fiction comes into operation at the time of payment by way of advance or loan, provided other conditions are satisfied, even if the loan is repaid before the end of the year. The appeal was dismissed.

What were the issues?

1. Whether a payment by a company, not in which the public are substantially interested, by way of advance or loan to a shareholder, which is repaid before the end of the financial year, is to be treated as a dividend within the meaning of Section 2(6A)(e) of the Indian Income-tax Act, 1922, read with Section 12(1B) of the Act, for the Assessment Year 1957-58. Assessee's contentions: - The loan was repaid before the end of the financial year, thus it ceased to exist and could not be treated as dividend income. - The principles of Section 108(1) of the Commonwealth Income Tax Assessment Act, which requires the loan to be outstanding at the end of the year, should be read into the Indian Act, as the omission was a casus omissus. - The general scheme of the Act, which bases assessment on the total income of the whole previous year, supports ignoring interim loans. Revenue's contentions: - The language of Sections 2(6A)(e) and 12(1B) is clear and unambiguous, and no words should be imported from foreign statutes. - The fiction created by the sections is attracted as soon as the conditions are met, irrespective of subsequent repayment.

Which sections of the Income-tax Act were involved?

Section 2(6A)(e),Section 12(1B),Section 23A,Section 16(2),Section 3

AI-generated summary — verify with the full judgment below

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

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 23A

All 45 judgments and leading authorities on Section 23A →

Recent GST High Court judgments

Search GST case law →