JUDGMENT

The Income Tax Appellate Tribunal, Ahmedabad Bench “C” has referred following question under section 256(2) of the Income Tax Act, 1961 (“the Act” hereinafter referred to as), at the instance of the Commissioner:

“Whether the Appellate Tribunal is right in law and on facts in observing that the conditions prescribed under section 2(22) (e) of the Act were not satisfied in the instant case and thereby deleting the addition made by the assessing officer treating the benefits taken from the company as deemed dividend ?”

2. The assessment is in relation to block period commencing from 1-4-1985, and ending on 15-11-1995. The assessing officer made addition to the tune of Rs. 1,55,68,150 by invoking the provisions of section 2(22)(e) of the Act. When the matter was carried before the Tribunal, the Tribunal came to the conclusion that the said provision requires establishment of either of the two facts : (i) the payment from the company has to be by way of advance or loan, or (ii) the payment is made for and on behalf of or for benefit of the assessee, but in both the cases the payment by the company has to be from the accumulated profits. That, in the instant case, the Tribunal found that the assessing officer had not recorded any finding that there were accumulated profits within the meaning of the said term under section 2(22)(e) of the Act. The Tribunal, therefore, deleted the addition.

3. Mr. M.R. Bhatt, learned senior standing counsel appearing for the applicant-Revenue, submitted that though it was prayed that the assessing officer had not recorded any finding regarding accumulated profits being available, as the assessee had substantial interest in the company, the Tribunal ought to have restored the matter to the file of the assessing officer for assessment afresh and recording a finding as to whether the accumulated profits existed or not.

4. Mr. Saurabh N. Soparkar, senior advocate appearing on behalf of the respondent-assessee, supported the order of the Tribunal.

5. On a plain reading of section 2(22)(e) of the Act, it becomes apparent that the provision defines “dividend” and the definition is inclusive one. Vide clause (e), any payment by the company of the nature stipulated in the provision, either by way of advance or loan to a shareholder, or any payment by any such company on behalf or for the individual benefit of any such shareholder, can be deemed as a dividend provided the shareholder fulfils the requirements of being a beneficial owner of the shareholding having not less than ten per cent, of the voting power, etc. However, before such payment by the company could be deemed to be dividend for bringing to tax, in the hands of the shareholder concerned, it has to be found as a matter of fact that the company in either case possesses accumulated profits, and the amount which can be brought to tax, would be the payment equivalent to the extent of accumulated profits.

6. In the light of the view that the court has taken it is not necessary to enter into any discussion on the issue as to whether respondent-assessee had, or did not have, substantial interest or necessary percentage of shareholding so as to fulfil the other requirement of section 2(22) (e) of the Act though the Tribunal has categorically held that the respondent-assessee did not have such a shareholding.

7. In the facts of the case, the record reveals that the Tribunal has found as a matter of fact that there is no finding that payment was made out of accumulated profits or that the company possessed accumulated profits. Therefore, on this count the impugned order of the Tribunal does not suffer from any legal infirmity so as to warrant interference.

8. In so far as the contention that the Tribunal ought to have sent the matter back to the assessing officer for ascertaining the existence or otherwise of accumulated profits suffice it to state that in the absence of any pleadings or submissions to the said effect, the law does not require the Tribunal to give a second innings to a party.

9. In the facts and circumstances of the case, the question referred for opinion of this High Court is answered in the “affirmative”, i.e., in favour of the assessee and against revenue. The reference stands disposed of accordingly with no order as to costs.

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