C.I.T. ANDHRA PRADESH v. C. P. SARATHY MUDALIAR
Citation: [1972] 1 S.C.R. 1076; 1971 INSC 282
Court: Supreme Court of India
Bench: K.S. HEGDE , HANS RAJ KHANNA
Judgment date:
Case summary
1971 INSC 282. Supreme Court of India judgment dated 1971-10-12. C.I.T. ANDHRA PRADESH v. C. P. SARATHY MUDALIAR. Read the judgment and case details on...
Judgment text
1080 SUPREME COURT REPORTS • A CJ. T. ANDHRA PRADESH v. C. P. SARATHY MUDALIAR October 12, 1971 [K. S. HEGDE AND H. R. KHANNA, JJ. J B Income-tax Act, 1922, s, 2(6A) (e)-Dividend-H. U. F. holding . share& in names of its members-HUF not registered as shareholder- Loans to HUF by company not dividend wilhin meaning of s. 2(6A) (e). The assessee was a Hindu undivided farn:Iy. Three m1embers of ! he family namely, S and his two sons were shareholders. in a private limited company which was not a company in which the public were substantially c interesf"d within the meaning of s. 23A of the Income-tax Act, 1922. fo the account years 'relevant to the assessment years 1955-56, and 1956·57 the company advanced certain loans to the aforesaid Hindu undivided· farnil:Y: The question ai;:ose whether these loans could be considered as 'dividend' within the meaning of that expression in s. 2(6A) (e) of the Act.
The Income-tax Appellate Tribunal found as a fact that the loans in question· had been granted to tbo H. U. F. It further held that tho loans _advanced to the H. U. F. collld not be considered as Joans advan.. :cd D to the' 'shareholders' within the ·meaning of s. 2(6A)(e). The Higa Court in fefen~nce upheld the view taken by the Tribunal. In appeai- to 1his Court by the Revenue, HELD : It is well settled that an HUF cannot be a shareholder of a comp. any. The shareholder of a company is the individual who is registered as tho shareholder in the books of the company. The H. U. F. , the assessee in the present case, was not registered as a shareholder in books of the cpmpany nOr could it have been so registf! red. Hence, there \\·as no gain-saying the fact that the H. U. F. was not the shareholder of the -company. [1081 B-C] SectiQn 2(6A) (e) gives an artificial definition of 'dividend'. It docs not take in dividend actually declared or received.
The dividend taken note of bv that provision is a deemed dividend and not a. real dividend. F The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes · 1he legislature has deemed such a loan as 'dividend'. Hence s. 2(6A)(e) · must necessarilv receive a strict construction. When s. 2(6A) (e) speak~ of 'shareholderS' it refers to the registered shareholder and not to the beneficial owner. The HUF cannot be considered as a shareholder either under s. 2(6A)(e) or under s. 23A or s. 16(2) read with s. 18(5) of the Act. Hence a loan given to an HUF cannot be considered as a Joan G advanced to a 'shareholder' of a company (1081 D-E] Jn the present case sinc1::: no Joans were advanced to the shareholder. , ii. 2(6A)(e) was inapplicable. The appeal is dismissed. (1083 B] Howrah Trading Co. Ltd. v. C. 1. T. , Cen/Ml Calcutta, 36 I. T. R. 215 and C. J. T. , Bombay City JI v. Shakuntala & Ors. , 43 l. T. R.
352, relied ·OD. H Kishanchand Lunidasing Bajaj v. C. J. T. , Bangc. /ore, 60 I. T. R. 5iJO, ered shareholder and not the beneficial owner. The H. U. F. cannot be considered as a shareholder either under section 2 ( 6A) ( e) or under section 23A or under section 16(2) read with section 18(5) of the Act. Hence a loan given to an H. U. F. cannot be considered as a loan advanced to a "shareholder" of a company. l Our conclusion in this regard receives support from the decisions of this Court. In Howrah Trading Co. Ltd. v. Commissioner of Income-tax, Central, Calcutta, (36 I. T. R. 215) this Court had to examine the case of a person who had purChased shares of a company under a blank transfer but in whose name the shares had not been registered in the books of the compallJ.
The question was whether he could be considered as a "shareholder" in, respect of such shares f2r the purpose ofSection 18 (5) of the Act, because of his equitable right to the divi\lend on such shares and therefore entitled to have that divide-nil grossed up under section 16(2) by addition of income tax paid by the com- .. 1 dpany in respect of those shares and claim credit for the tax de- • ucted at the source. This Court held that he cannot be considered as a "shareholder", the reason being that he had not been registered as a shareholder. t7-L119SupCl/72 [1972] l S. C. R. In Commissioner of Income tax, Bombay City II, v. Shakun-ta/a & ors. ( 43 I. T. R. p. 352) a Hindu undivided family which was the beneficiary of certain shares in a company in which the public were not substantially interested held those shares in the names of different members of the family.
The Income Tax Officer applied the provisions of section 23A of the Act (before its amendment in 1955) and passed an order that undistributed portion of the distributable income of the company shall be deemed to be distributed, and the amount appropriate to the shares of the family were sought to be concluded in the income of the family. In that case again this Court ruled that the word "shareholder" in section 23A meant the shareholder registered in blooks of the company and the amount appropriate to the shares had to be included in the incomes of the members of the family, in whose names the shares stood in the register of the company; and as the Hindu undivided family was not a registered shareholder oJ' the company, that amount could not be considered as the income of the family under section 23A. From the above decisions it is clear that when the Act speaks of the "shareholder" it refers to the registered shareholder. Mr.
Sen contended that the above two decisions cannot be considered to have laid down the law correctly in view of the decision of this Court in Kishanchand Lunidasing Bajaj v. Commissioner of Income tax, Bangalore, (60 I. T. R. p. 500). Therein the question was whether a H. U:F. could be charged to tax in respect of dividends received by some of the coparceners of that family in respect of shares held by them, those shares having been purchased from out of the family funds. This court ruled that the dividends paid to the shareholder was the income of the family and that being so, the same was assessable in the hands of the Hindu undivided family. We see no conflict between this decision and the decisions earlier referred to. In the case of actual receipt of dividends there is a receipt of income. That income is received on behalf of the family. Hence, the same was assessable in the hands of the family.
;rn the case of deemed dividends under section 2(6A) (e) the family does not get any )ncome at all. The dividend referred to by that provision is only a deemed dividend and not a real dividend. Hence, no C.!. T. v. c. P. SARATHY \Hegde, J. ) I 08 ~ A income is either received by the family or accrued to it. Therefore, the only person who is deemed to have received that income can be assessed in respect of that income. Coming to the facts of the present case the loans advanced to shareholders alone can be deemed as dividends. No loans B had been advanced to shareholders as seen earlier. Hence, the shareholders did not get any income. Hence section 2 ( 6A) ( e) became inapplicable. For the reasons mentioned above these appeals fail and the same are dismissed with costs. G. C. Appeals dismissed -~.
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