Case Law Details
Brief of the Case
Calcutta High Court held In the case of CIT vs. Mahesh Chandra Mantri that It is apparent from the language of the Section 2(22) (e) that before any payment can take the character of dividend within the meaning of the aforesaid provision it has to be shown that there were accumulated profits lying with the company which made the payment. In the case before us it was never the contention of the revenue that any accumulated profit was lying with the company.
Facts of the Case
The company was having a reserve created from out of the share premium. Therefore, according to revenue, Section 2(22)(e) should be applied to any advance or loan made by the company.
Contention of the Revenue
The ld counsel of the revenue submitted that there was a reserve created from out of the share premium. Therefore, according to him Section 2(22) (e) should be applied to any advance or loan made by the company. In support of his contention he relied upon a judgment of the Apex Court in the case of Bharat Fire and General Insurance Ltd. v. C.I.T, New Delhi reported in (1964) Vol .LIII 108.
Held by ITAT
ITAT deleted the addition made by the Assessing Officer under Section 2(22) (e) of the Income Tax Act, 1961.
Held by High Court
It is clear from the Section 2(22) (e) that any payment will be treated as dividend only when there are accumulated profits lying with the company and out of which payment has been made. In this case, it was never the contention of the revenue that any accumulated profit was lying with the company. Their case is that the company was having a reserve created from out of the share premium. How is the money received by a company, on account of the share premium, is to be accounted for and how can that money be spent has been provided in Section 78 of the Companies Act, 1956.
Also the judgment in the case of Bharat Fire And General Insurance Ltd. v. C.I.T, New Delhi reported in (1964) Vol.LIII 108 on which ld counsel of the assessee relay upon, has no manner of application to the facts and circumstances of the case. In this case a capital reserve was created out of the share premium received and dividend was declared out of this capital reserve. The Companies act, 1913 did not contain any prohibition in application of share premium in declaring dividend.
In the case before us the provisions contained in Section 78 of the Companies Act, 1956 are applicable. It is interesting to note that it was not also the case of the revenue that from out of the moneys received on account of share premium dividend was declared as was done in the case of Bharat Fire and General Insurance.
Accordingly, appeal of the revenue dismissed.
