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

TARULATA SYAM AND ORS.

COMMISSIONER OF INCOME-TAX, WEST BENGA1"

April 28, 1977

{P. N. BHAGWATI, R. S. SARKARIA AND S. MURTAZA FAZAL ALI, JJ.]

Indian Income Tax Act, 1922-S. 2(6A)(e)-Scope of.

Co1npany s. 23A Co111pany in which public are not substantiq/.ly intertsted -Had accunut!ated profits-Gave loan/ to 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 compa·ny not being company in v,;hich the public are substantially interested \Vithin the meaning of s. 23A of any sum (whether as represcntirw: part of the assets of the company or other-wise) by way of advance or Joan to shareholder or a•ny payment by any such company on behalf or for the individual benefit of 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 conl.pany to 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 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 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 shareholder and Managing Director of 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 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.

'698 SUPREME COURT REPORTS

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.

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 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 shareholder of 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; (ii) The bQrrower must be shareholder at the date v.;hen the loa-n \Vas advanced; (iii) The loan advanced can be deemed to be dividend only to the extent of the accun1ulated pro'fit on the date of the Joan: (iv) The loan must not have been advanced by, the company in 1he ordinsiry course of its business and (v) The loan must have remained outstanding at the comn1encement of the shareholder's previous year in re!a ... tion to the assessment year 1955-56. [707 D-GJ

In the instant case the con1pany was controlled con1pany \Vithin the· meaning of s. 23A; the assessee was its shareholder; the company possessed "accumulated profits" in excess of the a•mount paid to the assessee during the previous years; and the company's business \Vas not money lending. 1'he· last condition was not applicable because it was transitory provision ap_pli-cable to the assessment year 1955~56 only \Vhile the assessment yea<r in this. case was 1957-58. f708 Al

2. (a) The language of ss. 2(6A)(e) and 12(1B) is clear and un-ambiguous. There is no scope for importing into the statute \VOrds \Vhich are not there. Such importation would be not to construe it but to amend the statute. Even if there be ai casus 01nissus, the defect can be remedied only by legislation and not by judicial interpretation. [708 HJ

(b) No justification to depart from the normal rule of construction according to which the intention of the legislature is prin1arily to be gathered from the won.l:; used in the statute h~s been made out.

(c) The Indian Legislature has deliberately omitted to use in ss. 2(6A) (e) and 12 (lB) words analogous to those in the last li1nb of s. 108( 1) of the Australian P..ct. When ss. 2(6A)(e) and 12(1B) \Vere inserted by Finance Act. 1955, Parliament must have been aware of the provision contained in s. 108 of the Australian Act. Jn spite of such awareness, Parliament has not thought it fit to borrow the whole hog what is sa.id in s. 108(1) so far as the last lin1b of that section is concerned. Our Parliament imported only very restricted version, and incorporated the san1e as the 5th condition in s. 12(1B) to the effect, that the payment dee1ned as divi<lend shall be treated as dividend received by him in the previous year relevaont to the assessment yea·r ending on the 31st March, 1956 if such loan or advance remained out-standirtg on the last day of such previous year The word "such" prefixed to the previous year shows that t·he application of this clause is confined to the assessment year ending on 31st ~.farch, 1956. (709 C~D]

In the instanl case the assessment year did not end on 31st March, 1956 lvhich showed th~t the Legislature has deliberately not made the subsistence of the loaQ or advance or its being outstanding on the last, date of the previous year relevant to the asse_ssment year, pre-requisite for raising the statutory fiction. In other \Vords, even if the loan or ndvance cCased to be

outstanding at the end of the previous year, it could still be deemed as divi-dend if the other four conditions factually existed to the extent of -the accumu-lated profits possessed by the company. (709 E·Fl

(.d) Under s. 3 which is the charging section, the previo~~ year. is the unit of tiine on which the assessment is based. As the taxab1hty of income is related to its receipt or accrual -in the previous year, the mom~nt dividend is received whether actual or deemed, income taxable under the residuary head, "income from oth~r sources", arises. The charge being on accrual or rec~ipt. the statutory fiction created by ss. 2(6A)(e) and s. 12(1B) would c~me mto operation at the time of payment by \vay of advance or loan prov1Jed the other conditions are satisfied. [709 G-H]

CIVIL APPELLATE JURISDICTION: c. A. No. 147 of 1972.

(Appeal by Special Leave from the Judgment a~d Order dated 19.2.1971 of the Calcutta High Court in Income Tax Ref. No. 98/67)

G. C. Shanna, D. N. Mukherjee, A. K. Ganguly and G. S. Chatter-iee, for the appellants.

B. B. Ahuja and R. N. Sachthey, for respondent.

G. C. Shanna, D. K. Jain, A11111> Sharma, S. P. Nayar and.Miss K. Jaiswal for the Intervener.

The Judgment of the Court was 'delivered by

SARKARIA J. Whether any payment by Company, not being Company in which the public are subsantially interested within the meaning of s. 23A, of any sum by way of advance or loan to share-holder, not exceeding the accumulated profits possessed by the Com-pany, is to be deemed as his dividend under Section 2(6A) (e) read with Section)2(1B) of the Income~tax Act, 1922, even if that advance or loan is subsequently repaid in its entirely during the relevant pre-v>'ous year in which it was taken, is the only question that falls to be determined in thls appeal by special leave.

The assessment year is 1957-58, and the corresponding previous year is 'the calendar year 1956. The assessee is shareholder and the Managing Director of M/s. Dolaguri Tea Co. (P) Ltd. The Company is admittedly one in which the public are not substantially interesteJ within the meaning of s. 23A of the Indian Income-tax Act, 1922 (for short, the Act). At the commencement of the previous year, there was in the books of the Company credit balance of Rs. 65,246/- in the assessee's account, which had been brought for-ward from the earlier year. Between the 11th January and the 12\h November, 1956, the assesscc withdrew in cash from time to time from the Company, amounts, aggregating Rs. 4,97,442/-. The first two cash amounts of Rs. 3,50,000/- and Rs. 40,400/-, were '.aken by the assessee on 11.1.1966. Deducting therefrom the open-ing balance of Rs. 65,246/-and two more items, namely, Rs. 1,40,000/- being outstanding dividends declared on 31.12.1955 of his major son, and transferred ·to his account, and further dividend of Rs. 19,493/- credited to his account from Kathoni Tea ·Estate, there remained sum of Rs. 2,72,7°'3/- to the debit of the nssessce

in the books of the Company as on the 12th November, 1956. On December 29, 1956, the assessee paid back to the Company sum of Rs. 1,90,000/-. On December 31, 1956, his account was credited with another sum of Rs. 80,000/- in respect of the dividend due to him and his wife, and with further sum of Rs. 29,326/- for liypo-tecation. In this manner before the end of the previous year, the asscssee'& :tccount was credited with an aggregated amount oi Rs. 2,99,326/- which exceeded the debit balance of Rs. 2,72,703/- as on November 12, 1956. Thus at the end of the relevant previous · year, no advance or loan was due to the Company by the assessee.

The Income-tax Officer found that the accumulated profits of the Company as on January 1, 1956, amounted to Rs. 6,83,005. He, therefore, deducted the two aforesaid items of Rs. 1,40,000/- and Rs. 19,493/-, aggregating Rs. 1,59,493/-, from the amount paid in cash to the assessee and treated the balance of Rs. 2,72,703/- as as the net 'dividend' income in the hands of the assessee within the meaning of Section 2 ( 6A)( e). The Income-tax 6A)( e). The Income-tax e). The Income-tax Officer grossed grossed up that amount under Section 16(2) and gave credit for tax in accordance with that Section to the assessee.

Company as on January 1, 1956, amounted to Rs. 6,83,005. He, therefore, deducted the two aforesaid items of Rs. 1,40,000/- and .c Rs. 19,493/-, aggregating Rs. 1,59,493/-, from the amount paid in cash to the assessee and treated the balance of Rs. 2,72,703/- as as the net 'dividend' income in the hands of the assessee within the meaning of Section 2 ( 6A)( e). The Income-tax 6A)( e). The Income-tax e). The Income-tax Officer grossed grossed up that amount under Section 16(2) and gave credit for tax in accordance with that Section to the assessee. The asscssee's appeal to the Appellate Assistant Commissioner having failed, he preferred further appeal to the Income-tax Appel-late Tribunal. There was divergence of opinion between the Mem-bers of the Tribunal. The Accountant Member took the view that the moment payment is made as envisaged in Section 2 ( 6A) ( e) it be-comes clothed with the character-of dividend and has to be treated as such income of the assessee, and no subsequent action or repayment "E · by the share-holder can take it out of the mischief of this provision. He therefore held that the sum of Rs. 2,72,703/-was taxable ns dividend under Section 2 ( 6A)( e). · •

The Judicial Member expressed contrary opinion. In his view, the total income of the assessec during the relevant previous year could be computed and assessed only at the end of that year; it could not be computed at interim periods during the previous year. "If it is found that although the shareholder had taken by way of advance or loan an amount from the Company during the course of previous year but. had returned the same to the Company before the close of that pre-vious year, it can only be said while computing the shareholder's total income at the end of that previous year that no advance or loan from the 23A Company of which he was shareholder stood for his benefit at the time relevant for computation of his total income. The advances or loans taken during the interim periods of the previous year would just have to be ignored." On these premises, the Judicial Member crune to the conclusion that the sum of Rs. 2, 72, 703 /- grossed up to Rs. 3,19,245/-, was not dividend within the fiction under Section 2(6A)(e) of the Act.

On account of this difference of opinion, the following question \vas referred to ·the President of the Tribunal :

"Whether on the facts and in the circumstances of the case, the sum of Rs. 2,72,703/- net (Rs. 3,19,245/- gross)

is to be treated as dividend income in the hands of the asses-see within the meaning of Section 2 ( 6A)( e) ?"

The President agreed with the Accountant Member and held that an "advance or Joan received by the shareholder of Private Company forthwith assumes the character of dividend and becomes his income by virtue of the fiction created by Section 2(6A) (e) and it ceases to be liability for the purpose of taxation, although the assessee may, in fact or in law, remain liable to the Company . to repay it. If the assessee repays the loan subsequently, such repayment would not liquidate or reduce the quantum of the income which had already ac-crued, as such repayment is not be ~llowed as permissible deduction under Section 12(2) ." On these premises, he answered the question in the affirmative.

In accordance. with the majority opinion, the Tribunal dismissed the as~essee's appeal, but, at his instance, referred the same question for opinion to the High Court under Section 66(1) of the Act.

The High Court held that the tax was attracted at the point of time when the said Joan was borrowed by the shareholder and it was imma-terial whether the loan was repaid before the end of the accounting year or not. On this reasoning it answered the question in favour of the Revenue and against the assessee.

Hence this appeal by the assessee.

Before dealing with the contentions canvassed, it is necessary tcr have look at the general scheme and the relevant provisions of the Act, Section 2(6A) (e) of the Act reads as follows :

"2 (6A) "dividend" includes-

(a) to (d)

(e) any payment by company, not being company in which the public are substantially interested within the meaning of section 23A of any sum (whether as re-presenting part of the assets of the company or otherwise) by way of advance or loan to share-holder or any payment by any such company on be-half or for the individual benefit of shareholder, to the extent to which the company in either case pos-sesses accumulated profits;

but "'dividend" does not includc-

( i) distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets;

(ii) any advance or loan made to shareholder by com-pany in the ordinary course of its busmess where the lending of money is substantial part of the busi-ness of the company;

"Provided that .. The principles .deducible from Sec. 4(1) are :

(l ) The charge is on accrual or receipt basis. Such receipt or accrual may be actual or statutory, i.e. the result of any statutory fiction created by the Act.

(2) If particular amount of income is taxed under any of the clauses (a), (b) or (c) of the sulrsection the same amount cannot be taxed under any other clause either in the same year or in different year. That is to say, in-come which is taxed on accrual under clause (b) (ii) can-not be taxed again on receipt under clause (a) or on re-mittance under Clause (b) (iii) (see Kanga and Palkhi-wala, Vol. I; 1959 Edition, page 153).

(3) The receipt spoken of in this clause is the first receipt after the accrual of the income l See the decision of this Court in Keshav Mills v. Commissioner of lncome-t(lx(')).

Sub-section (I) of Sec. 4 also highlights the basic principle embo-died in the charging section 3, that the accrual or receipt of income (actual or deemed) is taxed with regard to the relevant previous year.

Section 12 deals with the residuary head : "Income from other sources".

Its sub-section (JA) says that:

"Income from other sources shall include 'dividends'. Sub-section (!Bl in crucial. It provides :

"Any payment by company to shareholder by way of advance or loan which would have been treated as dividend within the meaning of clause ( e) of sub-section ( 6A) of sec-tion 2 in any previous year relevant to any assessment year prior to the assessment year ending on the 31st day of March, 1956 had that clause been in force in that year, shall be treated as dividend received by him in the previous'year relevant to the assessment year ending on the 31st day of March, 1956, if such loan or advance remained outstanding on the first day of snch previous year".

Sub-section (2), inter alia lays down that in computing any income by way of dividend, allowance shall be given for any reasonable sum paid by way of commission or remuneration to banker or any other person realising suc.h dividend on behalf of the assessee.

It is to be noted that sub-section (6A) of section 2 and sub-sections (!A) and (lB) u/s 12 were inserted in the Act by the Finance Act, 1955, with effect from the 1st April, 1956.

In the relevant assessment year, Section 16(2) of the Act was operative and ran as follows :

"16(2) For the purpose of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or

(!) [1953] 23 I.T.R. 230.

[1977) 3 S.C.R.

distributed to bim, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the com-pany. . . . . for the financial year in which the divi-dend is paid, credited or distributed or deemed to have been paid, credited or distributed were deducted there-from, be equal to the amount 'of the dividend."

Mr. G. C. Sham1a, Counsel for the appellants c011tends that the scope of the fiction created by Sec. 2( 6A)( e) should be confined to those advances and loans only, which are not repaid but remain sub-sisting at the end of the previous year in which they were taken. It is argued that the sole object of this provision is to curb the evil of dis-tributing profits under the guise of loaru; or advances; that if an advance or loan is repaid in the same accounting year, it cannot be said that it \Vas device for distribution of profits. It is submitted that only in the case of an advance or loan which remains outstanding at the end of the accounting year, Sec. 2(6A) (e) raises an irrebutablc presumption that it was payment of dividend under the cloak of loan. It is maintained that if this construction of Sec. 2(6A) (e) is not adopted, it will lead to extremely oppressive, unreasonable and anamolous re-sults, including double taxation.. To illustrate bis point Couasel com-pares and contrasts the position of shareholder who promptly, after short period, repays the loan in the same year, with one who does not do so but allows it to remain outstanding and be carried over to the next year, and thereafter dividend is declared. If the interpretation adopted by the High Court is correct-says Mr. Sharma-the share-holder in the prior case who had promptly repaid the loan would not be entitled under sub-clause (iii) of Clause (e) of s. 2(6A) to set off any part of the subsequently declared dividend against the loan which he had repaid earlier, but will have to pay double tax on the same item, once on it as deemed dividend and then on it as declared dividend. His liability cannot be reduced to the extent of the divi-dend; because at .the date on which the dividend was declared, no loan was outstanding against which it could be set off. As against the fOl'lller, the latter shareholder who makes full use of the' loan and . does not repay any part of the loan in the same year, but leaves it unpaid till dividend is declared ne~t year, will get rellef by set olt of the subsequently declared dividend. in whole or in part against the loan outstanding against him.

Another example cited by Mr. Sharma is of case where the ac-cumulated profit, say is Rs. 9,000/- and the shareholder takes an advance or loan of Rs. 3,000/- and he repays it after week, and again gets the same amount (Rs. 3,000/-) back as loan, and again repays it after week, and again retakes the same amount as loan-all the three loans being taken and repaid, in the same year. If the un-restricted interpretation of the provision, sought by the Revenue were to be adopted, the same amount of loan in all the three transactions of loan would be subjected to triple taxation. Such an absurd and oppres-sive result, says the Counsel, would be against the intendmcnt of the provision and inconsistent with the scheme of the Act which generally aillls avoids double taxation. The upshot of the arguments of Mr.

Sharma is that under the Act, only that item or entity is taxable which is rationally capable of being considered as the income of the asscssee; that an advance or ~oan which is genuine and not subter-fuge for payment of dividend and is not subsisting or outstanding at the end of the previous year on· account of its repayment by the sh.are-holder cannot reasonably be deemed to be his dividend income w1thm the contemplation of s. 2(6A) (e) read with s. 12 of the Act.. Mr· Sharma has taken us through various decisions having bearing on the problem. The cases referred to, discussed or sought to be distinguish-ed by him are : K. M. S. Lakshman Aiyar v. Assistant Income-tax Officer,(') N.avnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Com-missioner, Income-tax, Bombay;(') Commissioner. of Income-tax, i\fadras v. K. Srinivasan;(•) JValclzand & Co. Ltd. v. Commissioner of Incon1e-tax, IJ01nbay;(') Comn1issioner, Inco1ne-tax Bo1nbay. v. R. K. . Badiani.([5 ]) • ·

Mr. Sharma also has referred to Sec. I 08 of the Comnionwealih · Income-tax Act as ·in force in Australia, and submitted that since the substance of Sec. 2(6A)(e) and s. 12(!B) has been borrowed from s. 108 ·of the said Act and the object of these provisions in the two enactments is the same, it will not be illegitimate to determine ana . circumscribe the scope of the fiction created by the provision in question in the light of the principles indicated in Sec. 108 of the Commonwealth Act.

On the other hand. Mr. Ahuja appearing for the Revenue, submits that sub-clause (iii) . which permits set off against loan deemed as dividend, docs not apply in cases where the dividend is not declared in the same accounting year because to hold otherwise would be against the basic scheme ingrained in ss. 3 and 4 of the Act, according to which the unit of time for the purpose of assessment is the previous year of th" assessce. Mr. Ahuja further maintains that even if during the same accounting year after repayment' of the loan, dividend is declared, sub-clause (iii) will apply, and the Income-tax Officer -will'not be ae-barred from reducing, in an appropriate case, the amount treated by him as 'dividend' under clause ( e) of s. 2 ( 6A) to the extent of the sub-sequently declared dividend, on the principle of notional set off under-lying sub-clause (iii). The point sought to be made out is that since the treatment of the loan to the assessee shareholder as his dividend rests on legal fiction, it will not be an· illegitimate use of sub-clause (iii) to allow ·a notional set off to meet such situation. Thus cons-trued, says the Counsel, there would be no anomaly.

Mr. Ahuja further submitted that s. 2(6A) (e) was enacted to •uppress the evil of receiving profits or dividends nnder the guise of !?ans by the shareholders of controlled Company, as such malprac-ltce resulted in evasion of tax. This provision, it is urged should be con-strued in .a manner which suppresses the mischief and advances the · remedy. It is maintained that the language of the provisions in question

(I) [t96~) XL I.T.R. 469 (M1d.) (2) [1965] I, SCR 909-56 I.T.R.19.8. (3) (1963) 50, !TR 788 (Mid). (4) too I.T.R. 598(Bom). (5) [1970)76 l.T.R. 369 (Born).

is plain and unambiguous and no question of seeking external aid tor its interpretation arises; the Court must give effect to it regardless of the • hardship, if any, resulting therefrom. The sum and substance of his arguments is. that since all the factual ingredients necessary for raising . the fiction contemplated bys. 2(6A)(e) ands. 12(JB) have been found to exist by the Income-tax al!thorities and the Tribunal, the loan. had to be treated as the assessee's dividend income, the moment it was received, and the subsequent repayment of the loan cou:d not neutralise or take it out of that category of 'incdme'. Counsel has drawn our attention to the ooocrvations of this Court in Navnit Lal C. Javeri· v. K. K. Sen. Appellate Assistant Commissioner of Income-tax (sµpra). He has further adopted the reasoning of the Bombay High Court m Walchand & Co.'s v. Commissioner of Income-tax, Bombay (supra).

Section 2(6A)(e) ands. 12(1B) were inserted in the Act by the Finance Act 1955 which came into operation on 1-4-1955. These provisions seem to have been adapted, and borrowed with alterations, from s. 108 of the Commonwealth Income-tax Assessment Act in force ' in Australia. Section 108 reads as follows:

"Loans to shareholders, (1) If amounts are paid or assets distributed by private company to any of its shareholders by way of advances or loans, or payments are made by the company on behalf of or for the individual benefit of, any of its shareholders, so much, if any, of the amount or value of those advances, loans or payments, as, in the opinion of the Commissioner, represents distributions of income shall, for the proposes of this Act other than the purposes of Division llA of Part III and Division 4 of Part VI be deemed to be dividends paid by the company on the last day of the year of income of the company in which the payment 0r distri-butio"n is made.

(2) Where the amount or value of an advance, loan or payment is deemed, under the last preceding sub-section, to be dividend paid by company to shareholder, and the company subsequently sets off the whole or part of divi-dend distributed by it in satisfaction in whole or in part of that advance, loan or payment, that dividend shall, to the extent to which it is so set off, be deemed, not to be dividend for any purpose of this Act."

It will be seen that under s. 108 (1) formation of "the opinion of the Commissioner" is the sine qua non for bringing this provision into provision into operation. It has been held be the Australian Board of Review that the mere fact that shareholder in private Company has become indebted to it, does not justify the formation of the opinion by the Commissioner such as is indicated in sub-section (1) of s. 108. "There must be something that goes beyond mere debt automatically arising upon taking of accounts and which points to subterfuge whereby payment which, upon examination, is found to relate to tne income of the Company and to represent the distribution thereof, is made to appear to be loan or advance" (J.C.T.B.R. (N.S.) Case No. 80.)

It is noteworthy that at least in one material aspect the Indian Jaw ;s different from that under s. I 08 (I) of the Commonwealth Act as explained and interpreted by the Board in the case mentioned above. Under s. 108, the raising of the fiction is dependent upon positive finding recorded by the Commissioner of Income-tax that the payment represents distribution of the Company's income. Buts. 2(6A){e) and 5. 12 of the Act do not leave this question to the adjudication of the Income-tax authorities. Parliament has itself, in the exercise of its Jegi>-lative judgment, raised conclusive presumption, that in all cases where loans are advanced to shareholder in Private Ltd. Company having accumulated profits, the advances should be deemed to be the dividend income of the shareholder. It is this presumption juris et de jure which is the four,dation of the statutory fiction incorporated in s. 2(6A) (e). Thus s. 108 of the Commonwealth Act appears to be more reasonable and less harsh than its Indian counterpart.

Frol)l the above discussion it emerges clear that the fiction created 'bys. 2(6A) (e) read withs. J2(1B) of the Act is inexorably attracted as soon as all the conditions necessary for its application exist in case. In Navnit Lat's case (supra), this Court, after an analysis of these provisions, listed these conditions, as follows :

" ... the combined effect of these two provisions is that three kinds of payments made to the shareholder of com-pany to which the said provisions apply, are treated as taxable dividend to the extent of the accumulated profits held by the company. These three kinds of payments are: (1) payments made to the shareholder by way of advance or loan, (2) payments made on his behalf and (3) payments made for his 'individual benefit. There are five conditions which must be satisfied before section 12(1B) can be invoked against ·shareholder. The first condition is that the company in question must be one in which the public are not 'substantially interested within the meaning of section 23A as it stood in •the year in which the loan was advanced. The second condi-tion is that the borrower must be shareholder at the date when the loan was advanced; it is immaterial what the ex-tent of his shareholding is. The third condition is that the loan advanced to shareholder by such company can be .deemed to be dividend only to the extent to which it is shown that the company possessed accumulated profit at the date of the loan. This is an important limit prescribed by the rele-vant section. The fourth condition is that the loan must not have been advanced by the company in the ordinary course of its business. In other word's, this provision would not apply to cases where the company which advances loan to its shareholder carries on the business of money lending it-self; and the last condition is that the loan must have remained outstanding at the commencement of the shareholder's pre-vious year in relation to the assessment year 1955-56."

(emphasis; supplied)

The first four conditions factually exist in the instant case. The •ast condition is not applicable because it was transitory provision 6-707 SCT/77 . '

applicable to the assessment year 1955-56 only, while we are con-• cerned with the assessment year 1957-58 and the previous year is the calendar year 1956. There is no dispute that the company is controlled (Private Ltd.) company in which the public are not sub-stantially interested within the meaning of s. 23A. Further the assessee is admit.tedly shareholder and Managing Director of that · Company. It is also beyond. controversy that at all material times, the company possessed "accumulated profits" in excess of the amount which the assessee-shareholder was paid during the previous year. The Income-tax Officer found that on January 1, 1956, the accunm-lated profits of the Company amounted to Rs. 6,83,005/- while from 11.1.1956 to 12.11.1956, th.e assessee received in cash from time to time from the Company payments aggregating Rs. 4,97,449/-. After deducting the opening credit balance and some other items credited to his account, the Income-tax Officer found that in the pre-vious year the assessee share-holder had received net payment of Rs. 2, 72, 703 /- by way of loan or advance from the Company. The Company's business is not money lending and it could not be said that the loans had been advanced by the company in the ordinary course of its business. Thus all the factual conditions for raising statutory fiction created by ss.2(6A) (e) and 12(IB) appeared to have been satisfied in the instant case.

Mr. Sharma, however, contends that in order to attract the statu-tory fiction one other essential condition is, that the loan or advance must be outstanding at the end of the previous year, and if the loan had ceased to exj,5t owing to repayment or otherwise before the end of the year-as in the present case-the fiction cannot be invoked. In this connection, Counsel has again referred to the last limb of s. 108 ( 1) of the Commonwealth Income-tax Act, according to which, the pay-ment to shareholder by way of advance or loan. is to be treated as dividend paid by the Company on the last day of the year of in-come of the Company in which the payment is made.

It is urged that the principle in the last limb of sub-section' ( 1) of s. 108 of the Commonwealth Act should also be read into the Indian statute. It is maintained that the omission of such words from ss. 2(6A) (e) and 12(1B) does not show that the intendment of the Indian Legislature ·was different. According to the Counsel what is implicit in s. 108(1) of the Commonwealth Act, is implicit in ss. 2(6A) (e) and 12(1B) and the general scheme of. the Act which requires that the assessment is to be made on the basis of total income of the whole previous year. Such view concludes Mr .. Sharma, would also be in consonance with reason and justice. We have given anxious thought to the persuasive arguments o~ Mr. Sharma. His arguments, if accepted, will certamly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the Jangu~ge of ss. 2(6A) (e) a.ml ~2qB) is clear and unambiguous. There 1s no sco~e for ~mportmg mto the statute words which are not there. Such 1mportat10n would be, not to construe but to amend the statute. Even if there be casu.~ omissus the def~ct can be remedied only by ·1egfslation: and i1ot by judi-cial interrretation. -

To us, there appears no justificatiou to depart from the normal rule of construction according to which the intention of the legislature is primarily· to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in Cape Brandy Syndi-case v. I. R. C.(1) at p. 71, that "in taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. nothing is to be read in, nothing is to be implied. One can qnly look fairly at the langnage used". Once it is shown that the case of the assessee comes comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. In our opinion, the Indian Legislature has deliberately omitted to use in ss. 2(6A) (e) and 12(1B) words analogous to those in the last limb of sub-section ( 1) of s. I 08 of the Commonwealth Act. When Sections 2(6A) (e) and 12(1B) were inserted by the Finance Act, 1955, Parliament must have been aware of the provision contained in s. 108 of the Commonwealth Act. In spite of such awareness, Parliament has· not thought it fit to borrow whole hog what is said in s. I 08 (I) of the Commonwealth Act. So far as the last lim.b of s. 108 (I) is concerned, our Parliament imported only very res-tricted version arid incorporated the same as the 'fifth condi-tion' in sub-s. ( lB) of s. 12 to the effect, 'that the "pay-ment deemed as dividend shall be treated as dividend received by him in the previous year relevant to the assessment year ending on the 31st day of March, 1956 if such loan or advance remains outstanding on the last day of such previous year". The word "such" prefixed to the "previous year" shows that the application of this clause is confined to the assessment year ending on 31-3-1956. In the instant case we are not concerned with the assessment year ending on 31-3-56. This highlights the fact that the Legislature has deliberately not made the subsistence of the loan or advance, or its being outstanding on the last date of the previous year relevant to the assessment year, pre-requisite for raising the statutory fiction. In other words, even if !he loan or advance ceases to be outstanding at the end of the previous year, it can still be deemed as 'dividend' if the other four conditions factually exist, to the extent of the accumulated profits possessed by the Company.

At the commencement of this judgment we have noticed some gene-ral principles, one of which is, that the previous year is the unit of time on which the assessment is based (s. 3). As the taxability of an income is related to its receipt or accrual in the previous year, the moment dividend is received whether it is actual dividend declared by the company or is deemed dividend, income taxable under the resi-duary head, "income from other sources", arises. The charge being on accrual or receipt the statutory fiction created by s. 2 ( 6A) ( e) and s.l2(1B) would come into operation at the time of the payment by way of advance or loan, provided the other conditions are satisfied.