No 147 of 1972
Appeal by Special Leave from the Judgment and Order dated 1921971 of the Calcutta High Court in Income Tax Ref
No 9867 GC Sharma DN Mukherjee A K Ganguly and GS Chatterjee for the appellants
BB Ahuja and RN Sachthey for respondent
GC Sharma DK Jain Anup Sharma SP Nayar and Miss K Jaiswal for the Intervener
The Judgment of the Court was delivered by SARKARIA J
Whether any payment by a Company not being a Company in which the public are subsantially interested within the meaning of section 23A of any sum by way of advance or loan to a shareholder not exceeding the accumulated profits possessed by the Company is to be deemed as his dividend under Section 26A e read with Section 12lB of the Income tax Act 1922 even if that advance or loan is subsequently repaid in its entirely during the relevant previous year in which it was taken is the only question that falls to be determined in this appeal by special leave
The assessment year is 1957 58 and the corresponding previous year is the calendar year 1956
The assessee is a shareholder and the Managing Director of Ms Dolaguri Tea Co P Ltd The Company is admittedly one in which the public are not substantially interested within the meaning of section 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 a credit balance of Rs 65246 in the assessee s account which had been brought  forward from the earlier year
Between the 11th January and the 12th November 1956 the assessee withdrew in cash from time to time from the Company amounts aggregating Rs 497442 
The first two cash amounts of Rs 350000 and Rs 40400  were taken by the assessee on 1111966
Deducting therefrom the opening balance of Rs 65246 and two more item namely Rs 140000 being outstand ing dividends declared on 31121955 of his major son and transferred to his account and a further dividend of Rs 19493 credited to his account from Kathoni Tea Estate there remained a sum of Rs 272703 to the debit of the assessee 700 in the books of the Company as on the 12th November 1956
On December 29 1956 the assessee paid back to the Company a sum of Rs 190000 
On December 31 1956 his account was credited with another sum of Rs 80000 in respect of the dividend due to him and his wife and with a further sum of Rs 29326 for hypotecation
In this manner before the end of the previous year the assessee s account was credited with an aggregated amount of Rs 299326 which exceeded the debit balance of Rs 272703 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 prof its of the Company as on January 1 1956 amounted to Rs 683005
He therefore deducted the two aforesaid items of Rs 140000 and Rs 19493  aggregating Rs 159493  from the amount paid in cash to the assessee and treated the balance of Rs 272703 as the net dividend  income in the hands of the assessee within the meaning of Section 2 6Ae
Theincome tax Officer grossed up that amount under Section 162 and gave credit for tax in ac cordance with that Section to the assessee
The assessee s appeal to the Appellate Assistant Commissioner having failed he preferred a further appeal to the Income tax Appellate Tribunal
There was a divergence of opinion between the Members of the Tribunal
The Ac countant Member took the view that the moment a payment is made as envisaged in Section 26Ac it becomes clothed with the character of a dividend and has to be treated as such income of the assessee and no subsequent action or repayment by the share holder can take it out of the mis chief of this provision
He therefore held that the sum of Rs 272703 was taxable dividend under Section 26Ae
The Judicial Member expressed a contrary opinion
In his view the total income of the assessee during the rele vant 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 a previous year but had returned the same to the Company before the close of that previous 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 a 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 came to the conclusion that the sum of Rs 272703 grossed up to Rs 319245  was not a dividend within the fiction under Section 26A e of the Act
On account of this difference of opinion the following question was referred to the President of the Tribunal Whether on the facts and in the circum stances of the case the sum of Rs 272703 net Rs 319245 gross 701 is to be treated as dividend income in the hands of the assessee within the meaning of Section 26A e  The President agreed with the Accountant Member and held that an advance or loan received by the shareholder of a Private Company forthwith assumes the character of a divi dend and becomes his income by virtue of the fiction created by Section 26A e and it ceases to be a 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 accrued as such repayment is not be al lowed as a permissible deduction under Section 122
On these premises he answered the question in the affirma tive
In accordance with the majority opinion the Tribunal dismissed the assessee s appeal but at his instance referred the same question for opinion to the High Court under Section 661 of the Act
The High Court held that the tax was attracted at the point of time when the said loan was borrowed by the share holder and it was immaterial 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 to have a look at the general scheme and the relevant provisions of the Act Section 2 6Ae of the Act reads as follows 6A dividend includes a to d  e any payment by a company not being a company in which the public are substantially interested within the meaning of section 23A of any sum whether as representing a part of the assets of the company or otherwise by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder to the extent to which the company in either case possesses accumulated profits but dividend does not include i a 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 a share holder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the compa ny 702 iii any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of clause e to the extent to which it is so set off Explanation
The expression accumulated profits wherever it occurs in this clause shall not include capital gains arising before the 1st day of April 1946 or after the 31st day of March 1948 and be fore the 1st day of April 1956 Sub section 15 defines total income  as meaning total amount of income profits and gains referred to in sub section 1  of Section 4 computed in the manner laid down in this Act Section 3 is the charging section
Two of the princi ples deducible from the Section are 1  That the tax is levied on the total income of the assessable entity 2 That each previous year is a distinct unit of time for the purpose of assessment and the profits made or liabilities or losses incurred before or after the relevant previous year are wholly immaterial in assessing the profits of that year unless there is a statu tory provision to the contrary
Section 4 1  so far as it is material reads as follows Section 41 Subject to the provisions of this Act the total  income of any previous year of any person includes all income prof its and gains from whatever source derived which a are received or are deemed to be re ceived in the taxable territories in such year by or on behalf of such person or b if such person is resident in the taxa ble territories during such year i accrue or arise or any deemed to accrue or arise to him in the taxable territories during such year or ii accrue or arise to him without the taxable territories during such year or iii   c if such person is not resident in the taxable territories during such year accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year emphasis supplied Provided that    The principles deducible from Sec
41 are 1  The charge is on accrual or receipt basis
Such receipt or accrual may be actual or statutory ie the result of any statutory fiction created by the Act
703 2 If a particular amount of income is taxed under any of the clauses a b or c of the sub section the same amount cannot be taxed under any other clause either in the same year or in a different year
That is to say income which is taxed on accrual under clause b ii cannot be taxed again on receipt under clause a or on remittance under clause biii see Kanga and Palkhiwa la Vol
I 1959 Edition page 153
3 The receipt spoken of in this clause is the first receipt after the accrual of the income See the decision of this Court in Keshav Mills vs Commissioner of Income tax1
Sub section 1 of Sec 4 also highlights the basic principle embodied 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 1A says that Income from other sources shah include dividends 
Sub section lB in crucial
It provides Any payment by a company to a share holder by way of advance or loan which would have been treated as a dividend within the meaning of clause e of sub section 6A of section 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 a 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 such previous year
Sub section 2 inter alia lays down that in computing any income by way of dividend allowance shah be given for any reasonable sum paid by way of commission or remuneration to a banker or any other person realising such dividend on behalf of the assessee
It is to be noted that sub section 6A of section 2 and subsections 1A and lB us 12 were inserted in the Act by the Finance Act 1955 with effect from the 1 st April 1956
In the relevant assessment year Section 162 of the Act was operative and ran as follows 162 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 1 704 distributed to him 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 company   for the finan cial year in which the dividend is paid credited or distributed or deemed to have been paid credited or distributed were deducted therefrom be equal to the amount of the dividend
 Mr GC Sharma Counsel for the appellants contends that the scope of the fiction created by Sec
26Ae should be confined to those advances and loans only which are not repaid but remain subsisting 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 distributing profits under the guise of loans or advances that if an advance or loan is repaid in the same accounting year it cannot be said that it was a device for distribu tion 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 26A e raises an irrebutable presumption that it was a payment of dividend under the cloak of a loan
It is maintained that if this construc tion of Sec
26Ae is not adopted it will lead to ex tremely oppressive unreasonable and anamolous results including double taxation
To illustrate his point Counsel compares and contrasts the position of a shareholder who promptly after a 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 there after a 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 section 26A 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 dividend because at the date on which the dividend was declared no loan was outstanding against which
it could be set off
As against the former 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 a dividend is declared next year will get relief by set off of the subse quently declared dividend in whole or in part against the loan outstanding against him
Another example cited by Mr Sharma is of a case where the accumulated profit say is Rs 9000 and the share holder takes an advance or loan of Rs 3000 and he repays it after a week and again gets the same amount Rs 3000  back as a loan and again repays it after a week and again retakes the same amount as loan all the three loans being taken and repaid in the same year
If the unrestricted 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 oppressive result says the Counsel would be against the intendment of the provi sion and inconsistent with the scheme of the Act which generally aims avoids double taxation
The upshot of the arguments of Mr 705 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 assessee that an advance or loan which is genuine and not a subterfuge for payment of dividend and is not subsisting or outstanding at the end of the previous year on account of its repayment by the shareholder cannot reasonably be deemed to be his dividend income within the contemplation of section 26Ae read with section 12 of the Act
Mr Sharma has taken us through various decisions having a bearing on the problem
The cases referred to discussed or sought to be distinguished by him are KMS Lakshman Aiyar vs Assistant Income tax Officer1 Navnit Lal C Javeri vs
KK Sen Appellate Assistant Commissioner Income tax Bombay2 Commissioner of Income tax Madras vs
K Srini vasan 3 Walchand  Co Ltd vs Commissioner of Income tax Bombay4 Commissioner Income tax Bombay vs
RK Badiani
5 Mr Sharma also has referred to Sec
108 of the Commonwealth income tax Act as in force in Australia and submitted that since the substance of Sec
26Ae and section 12lB has been borrowed from s108 of the said Act and the object of these provisions in the two enactments is the same it will not be illegitimate to determine and circum scribe 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 a set off against a loan deemed as dividend does 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 sections 3 and 4 of the Act according to which the unit of time for the purpose of assessment is the previous year of the assessee
Mr Ahuja further maintains that even if during the same accounting year after repayment of the loan a dividend is declared sub clause iii will apply and the Income tax Officer will not be debarred from reducing in an appropriate case the amount treated by him as dividend  under clause e of section 26A to the extent of the subsequently declared dividend on the principle of notional set off underlying 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 a legal fiction it will not be an illegitimate use of sub clause iii to allow a notional set off to meet such a situation
Thus construed says the Counsel there would be no anomaly
Mr Ahuja further submitted that section 26Ae was enact ed to suppress the evil of receiving profits or dividends under the guise of loans by the shareholders of a controlled Company as such a malpractice resulted in evasion of tax
This provision it is urged should be construed in a manner which suppresses the mischief and advances the remedy
It is maintained that the language of the provisions in question 1 1959 XL ITR469 Mad 2 19651 1 SCR 909 56 ITR 198
3 4 5 706 is plain and unambiguous and no question of seeking external aid for 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 by section 26A e and section 12lB have been found to exist by the Income tax authorities and the Tribu nal the loan had to be treated as the assessee s dividend income the moment it was received and the subsequent repayment of the loan could not neutralise or take it out of that category of income 
Counsel has drawn our attention to the observations of this Court in Navnit Lal C Javeri vs KK Sen Appellate Assistant Commissioner of Income tax supra
He has further adopted the reasoning of the Bombay High Court in Walchand  Co vs Commissioner of Income tax Bombay supra Section 26Ae and section 12lB 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 section 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 a 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 ad vances 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 11A 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 or distribution is made
2 Where the amount or value of an advance loan or payment is deemed under the last preceding sub section to be a dividend paid by a company to a shareholder and the company subsequently sets off the whole or a part of a dividend distributed by it in satis faction 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 a dividend for any purpose of this Act
 It will be seen that under section 108 1  formation of the opinion of the Commissioner is the sine qua non for bring ing this provision into provision into operation
It has been held be the Australian Board of Review that the mere fact that a shareholder in a private Company has become indebted to it does not justify the formation of the opin ion by the Commissioner such as is indicated in sub section 1 of section 108
There must be something that goes beyond a mere debt automatically arising upon a taking of accounts and which points to a subterfuge whereby a payment which upon examination is found to relate to the income of the Company and to represent the distribution thereof is made to appear to be a loan or advance ICTBR NS Case No80 707 It is noteworthy that at least in one material aspect the Indian law is different from that under section 1081 of the Commonwealth Act as explained and interpreted by the Board in the case mentioned above
Under section 108 the raising of the fiction is dependent upon a positive finding recorded by the Commissioner of Income tax that the payment represents distribution of the Company section income
But section 2 6A e and section 12 of the Act do not leave this question to the adjudica tion of the income tax authorities
Parliament has itself in the exercise of its legislative judgment raised a con clusive presumption that in all cases where loans are advanced to a shareholder in a 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 foundation of the statutory fiction incorporated in section 26Ae
Thus section 108 of the Commonwealth Act appears to be more reasonable and less harsh than its Indian counterpart
From the above discussion it emerges clear that the fiction created 26A e read with section 12lB of the Act is inexora bly attracted as soon as all the conditions necessary for its application exist in a case
In Navnit Lags 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 a company to which the said provisions apply are treated as taxable dividend to the extent of the accumu lated 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 satis fied before section 12lB can be invoked against a 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 condition is that the borrower must be a shareholder at the date when the loan was advanced it is immaterial what the extent of his shareholding is
The third condition is that the loan advanced to a shareholder by such a 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 relevant section
The fourth condition is that the loan must not have been advanced by  the company in the ordinary course of its busi ness
In other word s this provision would not apply to cases where the company which advances a loan to its shareholder earnes on the business of money lending itself and the last condition is that the loan must have remained outstanding at the commencement of the shareholders previous year in relation to the assessment year 1955 56 emphasis supplied The first four conditions factually exist in the instant case
The last condition is not applicable because it was a transitory provision 6 707 SCI 77 708 applicable to the assessment year 1955 56 only while we are concerned with the assessment year 1957 58 and the previous year is the calendar year 1956
There is no dispute that the company is a controlled Private Ltd company in which the public are not substantially interested within the meaning of section 23A
Further the assessee is admittedly a 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 accumulated profits of the Company amounted to Rs 683005 while from 1111956 to 12111956 the assessee received in cash from time to time from the Company payments aggregating Rs 497449 
After deducting the opening credit balance and some other items credited to his account the Income tax Officer found that in the previous year the assessee share holder had received a net payment of Rs 272703 by way of loan or advance from the Compa ny
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 ss26Ae and 12IB appeared to have been satisfied in the instant case
Mr Sharma however contends that in order to attract the statutory 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 exist owing to repayment or otherwise before the end of the year as in the present case the fiction cannot be invoked
In this connec tion Counsel has again referred to the last limb of section 108 1 of the Commonwealth Income tax Act according to which the payment to a shareholder by way of advance or loan is to be treated as a dividend paid by the Company on the last day of the year of income of the Company in which the payment is made
It is urged that the principle in the last limb of sub section 1 of section 108 of the Commonwealth Act should also be read into
the Indian statute It is maintained that the omission of such words from sections 26A e and 12lB does not show that the intendment of the Indian Legislature was different
According to the Counsel what is implicit in section 1081 of the Commonwealth Act is implicit in sections 26Ae and 121B and the general scheme of the Act which re quires that the assessment is to be made on the basis of total income of the whole previous year
Such a view concludes Mr Sharma would also be in consonance with reason and justice
We have given anxious thought to the persuasive argu ments of Mr Sharma
His arguments if accepted will certainly soften the rigour of this extremely drastic provi sion and bring it more in conformity with logic and equity
But the language of sections 26A e and 121B is clear and unambiguous
There is no scope for importing into the statute words which are not there
Such importation would be not to construe but to amend the statute
Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation
709 To us there appears no justification 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 Syndicase vs IRC1 at p 71 that in a taxing Act one has to look merely at what is clearly said
There is no room for any intendment
There is no equity about a tax
There is No presumption as to a tax
nothing is to be read in nothing is to be implied
One can only look fairly at the language used
Once it is shown that the case of the assessee 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 sections 26Ae and 12lB words analogous to those in the last limb of sub section 1 of section 108 of the Commonwealth Act
When Sections 26A e and 12lB were inserted by the Finance Act 1955 Parliament must have been aware of the provision contained in section 108 of the Common wealth Act
In spite of such awareness Parliament has not thought it fit to borrow whole hog what is said in section 108 1  of the Commonwealth Act
So far as the last limb of section 1081 is concerned our Parliament imported only a very restricted version and incorporated the same as the fifth condition  in sub section
lB of section 12 to the effect that the payment deemed as dividend shall be treat ed as a 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 pre fixed 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 subsist ence of the loan or advance or its being outstanding on the last date of the previous year relevant to the assessment year a prerequisite for raising the statutory fiction
In other words even if the loan or advance ceases to be outstanding at the end of the previous year it can still be deemed as a dividend  if the other four conditions factual ly exist to the extent of the accumulated profits possessed by the Company
At the commencement of this judgment we have noticed some general principles one of which is that the previous year is the unit of time on which the assessment is based section 3
As the taxability of an income is related to its receipt or accrual in the previous year the moment a dividend is received whether it is actual dividend declared by the company or is a deemed dividend income taxable under the residuary head income from other sources arises
The charge being on accrual or receipt the statutory fiction created by section 26Ae and s12IB would come into opera tion at the time of the payment by way of advance or loan provided the other conditions are satisfied
1 19211KB 64 atp
710 We do not propose to examine the soundness or otherwise of the illustrations given by Mr Sharma since they are founded on assumed facts which do not exist in the present case
For the foregoing reasons we would answer the question posed in favour of the Revenue and dismiss this appeal with costs
PBR Appeal dismissed


Summary:
Under section 26Aeof the Indian Income tax Act 1922 the term dividend includes any payment by a company not being a company in which the public are substantially interested within the meaning of section 23A of any sum whether as representing a part of the assets of the company or otherwise by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder to the extent to which the company in either case possesses accumulated profits
According to section 121A of the Act income from other sources includes dividends
Sub section lB of section 12 provides any payment by a company to a shareholder by way of advance or loan which would have been treated as dividend within the meaning of section 26Ae in any previous year relevant to any assess ment 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 a 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 such previous year
The provisions of section 26Ae and section 12lB had been borrowed and adopted with certain alterations from section 1082 of the Commonwealth Income Tax Assessment Act of Australia the last limb of which provided that payment to a shareholder by way 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 which payment was made
The appellant assessee was a shareholder and Managing Director of a Private Ltd Company
In the calendar year 1956 assessment year 195758 the assessee withdrew in cash from the company a sum of Rs 497 lakhs which was less than the accumulated profits of the company
Before the end of the year the assessee repaid the whole amount
Deduct ing a sum of Rs 159 lakhs which was credited to the asses see s account by way of dividend in the company s books the Income tax Officer treated the balance of Rs 272 lakhs as dividend income in the assessee s hands and grossed up the amount under section 162
appeal the Accountant Member of the Appellate Tribunal held that any payment made as envisaged in section 26Ae became dividend and must be treated as the assessee s income and no subsequent repayment could take it out of the mischief of the provision
The Judicial Member on the other band held that since total income of the asses see during the relevant previous year could be computed and assessed only at the end of that year any advance or loan taken during the interim periods of the previous year would have to
be ignored
On reference the President agreed with the Accountant Member
The High Court answered the reference in favour of the Revenue
698 were taken and ii the last limb of section 1081 of the Aus tralian Act should be read into the Indian Act because what was explicit in
section 1081 of the Australian Act is implicit in section 26Ae and section 12lB of the Indian Act
Dismissing the appeal HELD The fiction created by section 26Ae read with section 12lB of the Act is attracted as soon as all the conditions necessary for its application exist in a case
707 C 1
In Navnit Lal C Javeri vs
KK Sen Appellate Assist ant Commissioner Income tax   this Court held that the combined effect of these two provisions is that three kinds of payments made to a shareholder of a company are treated as taxable dividend to the extent of the accumulated profits held by the company namely payments made to the shareholder by way of advance or loan pay ments made on his behalf and payments made for his individu al benefit
The five conditions to be satisfied are i The company must be one in which the public are not substan tially interested within the meaning of section 23A ii The borrower must be a shareholder at the date when the loan was advanced iii The loan advanced can be deemed to be divi dend only to the extent of the accumulated profit on the date of the loan iv The loan must not have been advanced by the company is the ordinary course of its business and v The loan must have remained outstanding at the com mencement of the shareholder s previous year in relation to the assessment year 1955 56
707 D G In the instant case the company was a controlled company within the meaning of section 23A the assessee was its share holder the company possessed accumulated profits in excess of the amount paid to the assessee during the previ ous years and the company s business was not money lending
The last condition was not applicable because it was a transitory provision applicable to the assessment year 1955 56 only while the assessment year in this case was 1957 58
708 A 2
a The language of sections 26Ae and 12lB is clear and unambiguous
There is no scope for importing into the statute words which are not there
Such importation would be not to construe it but to amend the statute
Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation
708 H b No justification 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 has been made out
c The Indian Legislature has deliberately omitted to use in sections 26Ae and 12lB words analogous to those in the last limb of section 1081 of the Australian Act
When sections 26Ae and 12lB were inserted by Finance Act 1955 Parliament must have been aware of the provision contained in section 108 of the Australian Act
In spite of such aware ness Parliament has not thought it fit to borrow the whole hog what is said in section 1081 no far as the last limb of that section is concerned
Our Parliament imported only a very restricted version and incorporated the same as the 5th condition in section 12lB to the effect that the payment deemed as dividend shall be treated as dividend received by him in the previous year relevant to the assessment year ending on the 31st March 1956 if such loan or advance remained 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 31st March 1956
709 C D In the instant case the assessment year did not end on 31st March 1956 which showed 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 a prerequisite for raising the statutory fiction
In other words even if the loan or advance ceased to be 699 outstanding at the end of the previous year it could still be deemed as dividend if the other four conditions factually existed to the extent of the accumulated profits possessed by the company
709 E F d Under section 3 which is the charging section the previ ous year is the unit of time on which the assessment is based
As the taxability of income is related to its re ceipt or accrual in the previous year the moment dividend is received whether actual or deemed income taxable under the residuary head income from other sources arises
The charge being on accrual or receipt the statutory fic tion created by sections 26Ae and section 12lB would come into operation at the time of payment by way of advance or loan provided the other conditions are satisfied
709 G H