NAVNITLAL C. JAVERI vs K. K. SEN, APPELLATE ASSISTANT COMMISSIONER OFINCOME-TAX

The Supreme Court upheld the constitutional validity of Sections 12(1B) and 2(6A)(e) of the Income-tax Act, 1922, ruling that Parliament has the legislative competence to enact these provisions. The Court clarified that when a controlled company makes a loan to a shareholder instead of distributing profits as dividends, the shareholder is deemed to have received the amount as dividend for tax purposes. The Court found that the absence of a provision for the income-tax officer to assess the genuineness of the loan does not invalidate the sections, as they are designed to prevent tax evasion.