Judgment

SARKARIA, J. - Whether 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 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 2 (6A) (e) read with Section 12 (1B) of the Income-tax Act, 1922, even if that advance or loan is subsequently repaid in its entirety 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.

2. 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 M/s. Dolaguri Tea Co. (P) Ltd. The Company is admittedly one in which the public are not subsantially 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. 65,246/- in the assessees 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. 4,97,442/-. The first two cash amounts of Rs. 3,50,000/- and Rs. 40,400/-, were taken by the assessee on 11-1-1966. Deducting therefrom the opening 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 a further dividend of Rs. 19,493/- credited to his account from Kathoni Tea Estate, there remained a sum of Rs. 2,72,703/- to the debit of the assessee 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. 1,90,000/- On December 31, 1956, his account was credited with another sum of Rupees 80.000/- in respect of the dividend due to him and his wife, and with a further sum of Rs. 29,326/- for hypothecation. In this manner before the end of the previous year, the assessees account was credited with an aggregated amount of 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.

3. The Income-tax Officer found that the accumulated profits of the Company as on January 1, 1956, amounted to Rs. 6,88.005. 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 Rupees 2,72,703/- as the net dividend income in the hands of the assessee within the meaning of Section 2 (6A) (e). The Income-tax Officer crossed up that amount under Section 16 (2) and gave credit for tax in accordance with that Section to the assessee.

4. The assessees 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 Accountant Member took the view that the moment a payment is made as envisaged in Section 2 (6A) (e) 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 shareholder can take it out of the mischief of this provision. He therefore held that the sum of Rs. 2,72,703/- was taxable as dividend under Section 2 (6A) (e).

5. The Judicial Member expressed a contrary opinion. In his view, the total income of the assessee 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 cou