Advances to shareholders can be deemed to be dividend under s. 2(6A)(e) for purposes of s. 23A, but s. 23A does not apply if the advances are made before the expiry of the prescribed period.

1. S. P. MITRA, J. The assessee is a private limited company owning properties. The assessment years are 1955-56 and 1956-57. The relevant accounting periods are the years ending January 31, 1955, and January 31, 1956, respectively.

2. FOR the asst. yr. 1955-56, the assessee's total income was determined at Rs. 16,697. The tax payable thereon amounted to Rs. 7,253. There was a distributable surplus of Rs. 9,444. The assessee did not declare any dividend within the 12 months immediately following the expiry of the previous year but a dividend of Rs. 6,959 was declared on October 15, 1957. For the asst. yr. 1956-57, the total income was Rs. 17,000. The tax thereon was Rs. 7,384. The distributable surplus was Rs. 9,616. Here again no dividend was declared within twelve months immediately following the expiry of the previous year and a dividend of Rs. 6,959 was declared on October 15, 1957.

3. THE ITO invoked the provisions of s. 23A(1) and levied an extra super-tax under that section on the distributable surplus which amounted to Rs. 9,444 in the first year and Rs. 9,616 in the second year. His view was that distribution of dividends by the company after the expiry of the prescribed period, i.e., the 12 months immediately following the end of the previous year, was not distribution in terms of s. 23A(1).

4. THE AAC agreed with the ITO. But another argument was advanced before the AAC, namely, that even before the statutory period had expired, the directors of the company had received advances from the company, which were to be treated as dividends within the meaning of s. 2(6A) (e). THE AAC refused to entertain this argument as it involved investigation of facts. Before the Tribunal various points were urged. It is not necessary to refer to all of them inasmuch as learned counsel appearing for the assessee has confined himself mainly to two points. The first point relates to the advances made by the company to its own shareholders, and the second point to the deduction of dividends already distributed from the amounts estimated as deemed dividends by the IT authorities.

5. THE Tribunal has dismissed the appeals preferred by the assessee, and the following question of law has been referred to us:-

"Whether on the facts and in the circumstances of the case the provisions of s. 23A(1) could be applied to the company for the respective assessment years ?"

6. NOW it is admitted by the parties appearing before us that there is evidence that the company advanced to its controlling HUF a sum of Rs. 2,21,714 on January 31, 1955, and a sum of Rs. 1,48,801 on January 31, 1956.

Sec. 2(6A)(e) of the Act is as follows : "'Dividend' includes-- . . . . (e) any payment by a company, not being a company in which the public are substantially interested within the meaning of s. 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."

7. IT was urged on behalf of the assessee before the Tribunal that the advances by the company to the controlling shareholders amounted to a distribution of dividend within the meaning of s. 2 (6A)(e) (vide paragraph 4, page 12 of the paper-book). The Tribunal has dealt with this point in paragraph 7 of its order at page 13. This paragraph runs thus :

"With regard to the advances to the shareholders treated as dividends under s. 2(6A)(e), the snag in the appellant's arguments is that s. 23A(1) is concerned only with dividends distributed within the twelve months immediately following the expiry of the previous year of the company. Now it is clear that advances in the first year were made in the previous year so that no question of their distribution arises after the expiry of the previous year. With regard to the second year, in fact the advances were less than those