Case: Tarulata Syam And Ors Vs. Commissioner Of Income-Tax, West Bengal

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 the statutory fiction created by sections 2(6A)(e) and 12(1B) appeared to have been satisfied in the instant case." 15. 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 connection, 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 madeIt 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 2(6A)(e) and 12(1B) does not show that the intendment of the Indian legislature was different. According to the counsel what is explicit in section 108(1) of the Commonwealth Act, is implicit in sections 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 a view, concludes Mr. Sharma, would also be in consonance with reason and justice 16. We have given anxious thought to the persuasive arguments of Mr. Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections 2(6A)(e) and 12(1B) 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. 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 Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 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 17. In our opinion, the Indian legislature has deliberately omitted to use in sections 2(6A)(e) and 12(1B) words analogous to those in the last limb of sub-section (1) of section 108 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 section 108 of the Commonwealth 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 Common-wealth Act. So far as the last limb of section 108(1) is concerned our Parliament imported only a very restricted version, and incorporated the same as the " fifth condition " in sub-section (1B) of section 12 to the effect, that the " payment deemed as dividend 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 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 March 31, 1956. In the instant case we are not concerned with the assessment year ending March 31, 1956. 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, a pre-requisite 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 factually exist, to the extent of the accumulated profits possessed by the companyAt 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 lot 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 2(6A)(e) and section 12(1B) would come into operation at the time of the payment by way of advance or loan, provided the other conditions are satisfied 18. 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 19.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]These provisions seem to have been adapted with alterations from section 108 of the Commonwealth Income-tax Assessment Act in force in AustraliaIt will be seen that under section 108(1) formation of " the opinion of the Commissioner " is the sine qua non for bringing this provision into operation. It has been held by 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 opinion 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."From the above discussion it emerges clear that the fiction created by section 2(6A)(e) read with section 12(1B) of the Act is inexorably attracted as soon as all the conditions necessary for its application exist in a caseWe have given anxious thought to the persuasive arguments of Mr. Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections 2(6A)(e) and 12(1B) 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 interpretationTo 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 statuteThere are five conditions which must be satisfied before section 12(1B) 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 business. In other words, this provision would not apply to cases where the company which advances a loan to its shareholder carries 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 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 limited) 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. 6, 83, 005 while from January 11, 1956, to November 12, 1956, the assessee received in cash from time to time from the company payments aggregating Rs. 4, 97, 442. After deducting the opening credit balance and some other items credited to his amount, the Income-tax Officer found that in the previous year the assessee-shareholder had received a net payment of Rs. 2, 72, 703 by way of loan or advance from the company. The companys 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 the statutory fiction created by sections 2(6A)(e) and 12(1B) appeared to have been satisfied in the instant caseIn our opinion, the Indian legislature has deliberately omitted to use in sections 2(6A)(e) and 12(1B) words analogous to those in the last limb of sub-section (1) of section 108 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 section 108 of the Commonwealth 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 Common-wealth Act. So far as the last limb of section 108(1) is concerned our Parliament imported only a very restricted version, and incorporated the same as the " fifth condition " in sub-section (1B) of section 12 to the effect, that the " payment deemed as dividend 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 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 March 31, 1956. In the instant case we are not concerned with the assessment year ending March 31, 1956. 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, a pre-requisite 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 factually exist, to the extent of the accumulated profits possessed by the companyAt 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 lot 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 2(6A)(e) and section 12(1B) would come into operation at the time of the payment by way of advance or loan, provided the other conditions are satisfiedWe 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