Allahabad H.C :the amount of Rs.1,61,250 less the amount of advance against salary (i.e. Rs.1,61,250 – Rs. 92,400 = Rs. 68,850) withdrawn by the appellant from M/s. Shyam Biri Works P. Ltd. during the previous year 1992-93 (assessment year 1993-94) against the income accruing to him on account of commission on profit during the said year is liable to be taxed as ‘deemed dividend’ under section 2(22)(e) of the Income-tax Act on the ground that the right to receive commission on profit arises only when the accounts are settled at the end of the financial year

High Court Of Allahabad

Shyama Charan Gupta vs. CIT

Assessment Years 1992-93 And 1993-94

Section : 2(22)(E)

Sunil Ambwani And K. N. Pandey, JJ.

ITA Nos. 99 And 126 Of 2003

April 1, 2011

JUDGMENT

1. We have heard Shri R. P. Agarwal, learned counsel for the appellant. Shri A. N. Mahajan appears for the Department.

2. These two income-tax appeals under section 260A of the Income-tax Act, 1961, arise out of the orders passed by the Income-tax Appellate Tribunal dated March 24, 2003, relating to the assessment years 1992-93 and 1993-94.

3. The assessee was the managing director of M/s. Shyam Biri Works Pvt. Ltd. In the relevant assessment years 1992-93 and 1993-94, he was entitled to both salary and commission of profits. The assessing authority found that he has drawn advances both of salary and commission on profits and taxed them as deemed dividend under section 2(22)(e) of the Income-tax Act. The Tribunal found that the assessee was a salaried employee of the company. The salary due to him in the relevant years, namely, Rs. 5,000 in the assessment year 1992-93 and Rs. 7,700 in the year 1993-94 was fixed and deposited in his account. The commission on profits received by him in the respective years, against in advance are to be treated as deemed dividend under section 2(22)(e) of the Act. The advance of Rs. 1,50,000 in the assessment year 1992-93 and Rs. 1,61,250 in the assessment year 1993-94 was not a simple advance. After giving credit to the salary, which was to be paid to the petitioner the balance amount of advance in the respective years was not as advance against commission on profits. The Tribunal relied upon E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (SC) and CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC) and held that profit does not accrue from day-to-day. Unless right to profit comes into existence there is no actual accrual of profits. The right to receive commission on profit earned by the company arises only when the accounts are settled at the end of the accounting year. The accrual of commission on profits could be made only on 31st March of the respective year, when the accounts were settled.

4. The Tribunal directed that the assessee was not entitled to claim receipt of advance against commission. The assessing authority was directed to redetermine the deemed dividend in the hands of the assessee after adjusting the salary.

5. Shri R. P. Agarwal, learned counsel for the appellant submits that any amount, which is due to the appellant and on which he has paid tax could not be deemed to be dividend under section 2(22)(e) of the Act. If tax has been paid on income, it cannot be paid again treating it to be deemed dividend.

6. In the grounds of appeal the following question has been framed to be decided as substantial question of law :

Substantial question of law in Income-tax Appeal No. 99 of 2003

“1.Whether, on the facts and in the circumstances, the Income-tax Appellate Tribunal is correct in law in holding that the amount of Rs.1,61,250 less the amount of advance against salary (i.e. Rs.1,61,250 – Rs. 92,400 = Rs. 68,850) withdrawn by the appellant from M/s. Shyam Biri Works P. Ltd. during the previous year 1992-93 (assessment year 1993-94) against the income accruing to him on account of commission on profit during the said year is liable to be taxed as ‘deemed dividend’ under section 2(22)(e) of the Income-tax Act on the ground that the right to receive commission on profit arises only when the accounts are settled at the end of the financial year ?”

Substantial question of law in Income-tax Appeal No. 126 of 2003

“1.Whether, on the facts and in the circumstances, the Income-tax Appellate Tribunal is correct in law in holding that the amount of Rs.1,12,000 withdrawn by the appellant from M/s. Shyam Biri Works P. Ltd. during the previous year 1991-92 (assessment year 1992-93) against the income accruing to him on account of commission on net profit for the said year is liable to be taxed as ‘deemed dividend’ under section 2(22)(e) of the Income-tax Act on the ground that the right to receive commission on profit arises only when the accounts are settled at the end of the financial year ?”

7. Shri R. P. Agarwal relies upon the opinion of the court in CIT v. Creative Dyeing and Printing P. Ltd. [2009] 318 ITR 476 (Delhi) and CIT v. Rajkumar [2009] 318 ITR 462 (Delhi), and submits that in both these cases the Delhi High Court has held that under section 2(22)(e) of the Act there is no accrual of deemed dividend, if lending of money is by way of business of the company engaged in money-lending. The proviso under section 2(22)(e) of the Act is basically in the nature of Explanation. The business transactions of trade advances do not fall within section 2(22)(e). Relying upon CIT v. Nagin Das M. Kapadia [1989] 177 ITR 393 (Bom) and Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 (SC) in which similar provision of the Indian Income-tax Act, 1922, section 2(22)(e) was in issue, it was held that the amount advanced for business transaction between the parties were not such, which will fall within the meaning of deemed dividend under section 2(22)(e) of the Act.

8. We find that both these cases relied upon by the petitioner were in respect of trade advances, which could not be treated as deemed dividend.

9. In the present case, the advances drawn by the assessee were commission on profit from his account, which were not due to him before the accounts were settled, and which the assessee claimed to be his own income.

10. We do not find any force in the argument that the directions of the Tribunal will amount to double taxation inasmuch as no such point was taken or argued by the petitioner before any of the authorities.

11. Shri A. N. Mahajan, learned counsel for the Department submits that the findings, that the commission on profits was drawn as advance, could be ascertained only at the close of the accounting year, is a finding of fact. He relies upon the observations in the order of the Assistant Commissioner of Income-tax, Central Circle, Allahabad, dated March 1, 1995 (AO) as follows :

“As an alternative, it is worth considering that Rs. 1,50,000 has been debited in the salary account on April 15, 1991, ostensibly as advance salary drawn but the same has not been considered at all in the personal case of Shri S. C. Gupta for the assessment year 1992-93. Since amount is being considered as deemed dividend no separate additions are being made in his personal hands.”

12. The entire argument of learned counsel for the appellant is based upon the fact that the assessee had paid tax on the commission on profit drawn by him; and thus the amount drawn from the account in the company could not be treated as deemed dividend. The statement of fact in the order of the Assistant Commissioner of Income-tax dated March 1, 1995 (AO) does not support the argument.

13. We do not find any error in the findings recorded by the Tribunal that the advance towards salary, which was due to the petitioner and was credited to his account every month could not be treated as deemed dividend, but that the advance of commission on profits over and above that amount drawn during the course of the year before the profits was determined and accrued to the petitioner, would be treated as deemed dividend subject to tax. The amount was not treated as separate addition in the personal hands of the assessee.

14. Both the appeals are accordingly dismissed.

[Citation : 337 ITR 511]

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