TMI Blog1979 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... no conflict between these two decisions and the question is completely covered by the decision in CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC). The facts giving rise to the appeal are not in dispute and we may briefly state the same in order to appreciate how the question arises for determination. The assessee is the HUF of M/s. Rameshwarlal Sanwarmal consisting of S. M. Saharia as manager and karta and his wife and a minor son. The assessment year with which we are concerned in the appeal is 1956-57, the relevant accounting year being the year ending Ramnavami Sambat 2012, that is, 19th April, 1956. During this assessment year, the assessee was the beneficial owner of certain shares in a private limited company called Shyam Sundar Tea Co. (P.) Ltd. These shares, though beneficially owned by the assessee stood in the name of S. M. Saharia in the register of shareholders of the company. The assessee also owned 3 business concerns, namely, Milmony Shop, Saharia Co. and Saharia Industrial Corporation. The company advanced loans to these 3 business concerns during the relevant assessment year and since it was a company in which the public were not substantially interested, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee and there is no dispute about it. The other five questions related to the taxability of the loans advanced to the three business concerns of the assessee as deemed dividend under s. 2(6A)(e) and each of these questions brought in issue different aspects of taxability. It is the first of these questions which is material and we may reproduce it as follows : " Whether, on the facts and in the circumstances of the case, and on a true interpretation of the terms of section 2(6A)(e) of the Indian Income-tax Act, 1922, the Tribunal was right in holding that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as dividends in the hands of the applicant, HUF, for the assessment years 1955-56 and 1956-57, respectively, when the shares were registered in the name of Sri S. M. Saharia, the karta of the family ? " This question referred to both the assessment years 1955-56 and 1956-57, but we are not concerned in this appeal with the controversy relating to the assessment year 1955-56 and hence we shall confine ourselves only to the assessment year 1956-57. Now, two distinct aspects were comprised in this question and both were argued before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares or it could be brought to tax only in the assessment of the registered shareholder and the view taken was that where the shares acquired with the funds of one person are held in the name of another, it is the former who is assessable to tax on the dividend on those shares and this principle would apply equally to the " deemed dividend " under s. 2(6A)(e). This court did not consider whether the loans granted to the three business concerns of the assessee could at all be regarded as " deemed dividend " within the meaning of s. 2(6A)(e) when the assessee was not a registered shareholder and the decision of the High Court to the effect that the assessee not being a registered shareholder, the loans advanced to it could not be regarded as " deemed dividend " under s. 2(6A)(e) remained undisturbed. Now, obviously, so long as the decision of the High Court on this point was not overruled, the question whether the amount of the loans was taxable as deemed dividend in the hands of the assessee could not be answered in favour of the revenue. But sometimes even Homer nods and through some unfortunate inadvertence, for which the counsel appearing on behalf of the assessee in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the court when the first question came to be considered but it must be held to have been impliedly decided against the assessee, since the first question could not be answered in favour of the revenue on any other hypothesis. This argument of the revenue does appear to be very plausible at first blush, but if it is scrutinised closely it will be apparent that it is fallacious and cannot be accepted. The most important circumstance which it ignores is that when the reference was first heard by the High Court, the first question was decided in favour of the assessee on two counts : one was that, since the assessee was not a registered shareholder of the company, the loans advanced to the three business concerns of the assessee could not be regarded as " deemed dividend " within the meaning of s. 2(6A)(e) and the other was that even if they could be treated as " deemed dividend " under s. 2(6A)(e), they could be taxed only in the hands of S. M. Saharia, the registered shareholder, and not in the hands of the assessee who was merely a beneficial owner of the shares. When the revenue preferred an appeal against the judgment of the High Court, the revenue should have assailed the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court on this point in its favour and which decision was not assailed by the revenue in the appeal and which remained undisturbed by this court, be prejudiced on account of an obvious error committed by the court ? The proper way of looking at the decision of this court would be to regard the answer given in favour of the revenue to be confined only to the aspect considered and decided by this court. The only aspect considered by this court was whether the " deemed dividend " under s. 2(6A)(e) could be taxed in the hands of the beneficial owner of the shares or it could be assessed to tax only in the hands of the registered shareholder, and this court held that " deemed dividend " did not stand on any different footing from actual dividend and just as actual dividend was liable to be taxed in the hands of the beneficial owner of the shares, so also " deemed dividend " must be held liable to be taxed in the assessment of the beneficial owner. This court did not decide the question whether a loan advanced to a beneficial owner of the shares can be regarded as " deemed dividend " within the meaning of s. 2(6A)(e) and the answer given by this court in favour of the revenue cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sarathy Mudaliar is wrong. But having given our most anxious consideration, we find ourselves unable to disagree with the view taken in that decision. What s. 2(6A)(e) is designed to strike at is advance or loan to a " shareholder " and the word " shareholder " can mean only a registered shareholder. It is difficult to see how a beneficial owner of shares whose name does not appear in the register of shareholders of the company can be said to be a " shareholder ". He may be beneficially entitled to the share but he is certainly not a " shareholder ". It is only the person whose name is entered in the register of shareholders of the company as the holder of the shares who can be said to be a shareholder qua the company, and not the person beneficially entitled to the shares. It is the former who is a " shareholder " within the matrix and scheme of the company law and not the, latter. We are, therefore, of the view that it is only where a loan is advanced by the company to a registered shareholder and the other conditions set out in, s. 2(6A)(e) are satisfied. that the amount of the loan would be liable to be regarded as " deemed dividend " within the meaning of s, 2(6A)(e). The a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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