Judgment

GAJENDRAGADKAR, C.J.I. [On behalf of himself and K. N. Wanchoo, M. Hidkyatullah and J. R. Mudholkar, JJ.] : This appeal arises from a writ petition filed by the appellant Navnit Lal C. Javeri in the Bombay High Court in which he challenged the validity of S.12(1 B) read with S. 2(6A) (e) of the Indian Income-tax Act, 1922 (No. 11 of 1922), (hereinafter called the Act) as it stood in 1955. The High Court has rejected the appellant s contention that the said section is invalid, and the appellant has come to this Court with a certificate granted by the High Court.

2. The appellant holds 11 out of 845 shares in a private limited company named the Malegaon Electricity Co. (Private) Ltd. (hereinafter referred to as the company). The value of each share is Rs.100. The business of the company is to supply electricity to the residents of Malegaon. Some time during 1955, the appellant took a loan amounting to over Rs. 4 lakhs from the company. A notice was issued to the appellant by the 8th Income-tax Officer under S. 22(2) of the Act calling upon him to make his return for the assessment year 1956-57. The Income-tax Officer computed his income at Rs. 3,58,460. This amount included a sum of Rs.2,83,126 representing the accumulated profits of the company. The Income-tax Officer took the view that under S. 2(6A)(e) the said amount must be deemed to be dividend received by the appellant, and as such, must be included in the total income of the appellant as income from other sources within the meaning of section 12(lB) of the Act. This order was challenged by the appellant by preferring an appeal before the Appellate Assistant Commissioner. The appeal, however, failed and was dismissed. The appellant then preferred a second appeal before the Income-tax Appellate Tribunal. Whilst this appeal was pending before the said Tribunal, the appellant moved the High Court under Arts. 226 and 227 of the Constitution, and contended that the relevant section under which the department had purported to levy assessment against him on the sum of Rupees 2,83,126 was ultra vines. That is how the only question which the High Court had to decide in the present writ proceedings was whether section 12(1B) read with S. 2(6A) (e) was constitutionally valid.

3. In order to deal with this point, it is necessary to read the two relevant provisions of the Act. Section 2(6C) defines "income" as including dividend. S. 2(6A) defines"dividend" in an inclusive manner. Section 2(6A) (e) provides :

"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 sharehholder, to the extent to which the company in either case, possesses accumulated profits; but dividend does ant include -

(i)

(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money it a substantial part of the business of the company;

(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 sub-clause (e), to the extent to which it is so set off. Thus, the inclusive definition of "dividend" takes in the payments to which clause (e) of S. 2(6A) refers and makes them dividend for the purpose of the Act.

4. Section 12(1) provides that the tax shall be payable by an assessee under the head "Income from other sources" in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the proceeding heads).

Section 12(1B) provides :-

"any payment by a company to a shareholder by way of advance or loan which would have been treated as a dividend within the meaning of clause (e) of su