Case Law Details
ACIT Vs Shri Gurdeep Singh (ITAT Chandigarh)
The intention behind enacting provisions of section 2(22) (e) are that closely held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. As per the provisions of section 2(22)(e) of the Act, such a deemed dividend is taxed in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. Section 2(22)(e)of the Act, therefore, does not talk about the dividend actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. For certain purposes, the Legislature has deemed such a loan as ‘dividend’ and the effect of such deeming provision is that there is no option to the share holder to say that it is a mere loan and not his actual income. If it is proved that a loan has been given out of the accumulated profits of the company to the share holders having substantial interest in the company or to any other concern in which such a share holder has also substantial share holding, then as per the provisions of section 2(22) (e ) of the Act, there will be a presumption that such loan has been given for the benefit of the share holder and hence, is taxable in the hands of such a share holder. It has been made so by legal fiction created under section 2(22)(e)of the Act read with section 56 of the Act.
9. The words “deem” or “fiction” or irrebuttable presumption have not been defined in the Income Tax Act. For better understanding of the statutory presumptions and legal/deeming fictions, we deem it appropriate to refer to the relevant provisions of The Indian Evidence Act, 1872. Though the provisions of the Evidence Act are not strictly applicable to the procedures of this Tribunal as envisaged under the Income Tax Act, 1961, but the principles underlying the provisions of Evidence Act do constitute valuable guides. Section 4 of the Evidence Act, read as under:-
“4. “May presume”.—Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved, or may call for proof of it. “Shall presume”.—Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved. “Conclusive proof”.—When one fact is declared by this Act to be conclusive proof of another, the Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it.”
(emphasis supplied)
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