Hari Swarup, J.
1. This reference has come to us at the instance of the Commissioner of Income-tax. The question of law referred by the Income-tax Appellate Tribunal is:
'Whether, on the facts and in the circumstances of this case, the sum of Rs. 8,082 out cf the total loan of Rs. 74,642 taken by the assessee from the limited company alone was liable to be treated as dividend under Section 2(6A)(e) of the Indian Income-tax Act, 1922, in the hands of the assessee for the year under consideration?'
2. The assessment year is 1956-57, L. Roshan Lal, sines deceased, was a shareholder in the company, Messrs. Ram Chaudra and Sons Sugar Mills (F.) Ltd., during the previous year relevant to the assessment year 1956-57 as well as during the assessment year. The company advanced to him a sum of Rs. 74,642 between November 1, 1953, and November 23, 1966, The net income of the company after taking into account the losses of theearlier years for the relevant accounting year was Rs. 1,52,827. After providing for income-tax liability the amount available with the company in the form of profits on October 31, 1955, was Rs. 82,642. October 31, 1955, was the date on which the previous year of the company ended. Subsequently, on June 18, 1956, the annual general meeting of the company was held and at that meeting the accounts of the year ending October 31, 1955, were passed, and Rs. 74,560 was declared as dividend. These are the facts which appear from the statement of the case.
3. On these facts the Income-tax Officer held that the entire amount paid by way of loan to the assessee would be dividend income within the meaning of Section 2(6A)(e) of the Indian Income-tax Act, 1922, and accordingly he added this amount to the income of the assessee. The assessee went Up in appeal and the Appellate Assistant Commissioner allowed the appeal to the extent that Rs. 74,642 added to the assessee's income as his dividend income was to be deleted. The Appellate Assistant Commissioner held that as it was only in the year 1954-55 that the company had for the first time earned profits, the amount advanced to the assessee by the company could not be deemed to be out of the accumulated profits of the company.
4. The Income-tax Appellate Tribunal allowed the appeal of the department in part. It held that the amount of Rs. 8,082 alone will be deemed to be dividend within the meaning of Section 2(6A)(e). The Tribunal took the view that out of the total amount of Rs. 82,642 the accumulated profit will be deemed to be only that part which would be left over after deducting the sum of Rs. 74,560 declared as dividend by the company at its annual general meeting. The Tribunal repelled the assessee's contention that the amount could not be regarded as accumulated profit because it was the profit only of one year and was not accumulated over a number of years. The contention of the department that the subsequent declaration of dividend by the company could not affect the nature of the funds available with the company on the date of the advance of loan was also not accepted by the Tribunal.
5. The answer to the question, therefore, will depend on the question whether the accumulated profit of the company is the amount available for distribution by way of profits at the time the amount is lent to a shareholder by the company or it is the amount which remains after deducting from the total amount of profits the dividend which may subsequently be declared by the company.
6. Section 2(6A)(e) runs 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 Section 23A, of any sum (whether as representing a part of the assets of the company orotherwise) by way of advance or loan to the 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;
but 'Dividend' does not include--......
(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 dividend within the meaning of Clause (e) to the extent to which it is so set off.'
7. Clause (iii) quoted above shows that dividend may be declared by the company even after the amount has been paid and treated as dividend under Clause (e) of Section 2(6A). If any amount is allocated as dividend to the person to whom the payment has been made by the company earlier, the same would be adjustable and the shareholder concerned will not be liable to pay tax over again on the amount declared as dividend. It would be set off and will not be treated as dividend, because it has already been treated as dividend by application of Clause (e). This suggests that the declaration of dividend subsequent to the payment by the company will not change the nature or character of the amount paid by the company by way of advance or loan to the shareholder.
8. Accumulated profits within the meaning of Clause (e) will necessarily be comprised of the amount available for being distributed as profits. The word 'accumulated' means the profit earned bit by bit and accumulated. It does not mean that it should be carried forward from year to year. Profits can accumulate even within a single year. The entire amount which is available for .distribution as profits on a particular date would be the accumulated profit and any amount paid as advance or loan to the shareholder to the extent of this amount of accumulated profits will be dividend within the meaning of Section 2(6A)(e) of the Act. In the case of First Income-tax Officer v. Short Brothers (P.) Ltd. : [1966]60ITR83(SC) .the Supreme Court had the occasion of interpreting the words 'accumulated profits' as used in Clause (e) of Section 2(6A) in the light of the Explanation added to the section. The Explanation makes applicable the same definition of accumulated profits to the expression wherever used in Section 2(6A). In that case the Supreme Court held that the profits earned till the date of liquidation even in the middle of a year can be accumulated profits. This decision also leads to the inference that accumulated profits within the meaning of Section 2(6A)(e) will consist of the entire distributable profits available to a company till a particular date, which would, in the present case, be the date on which the payments were made to the assessee.
9. For the reasons given above, we are of opinion that the Tribunal was wrong in holding that only Rs. 8,082 and not the entire amount paid tothe assessee by the company was dividend within the meaning of Section 2(6A)(e) of the Act. We, accordingly, answer the question referred to us in the negative and in favour of the department. As no one has appeared for the respondents, there will be no order as to costs.