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2017 (1) TMI 331 - SUPREME COURT

2017 (1) TMI 331 - SUPREME COURT - TMI - Deemed dividend u/s 2(22)(e) - HUF - share certificates were issued in the name of the Karta - whether HUF cannot be a registered shareholder in a company and hence could not have been both registered and beneficial shareholder, loan/advances received by HUF could be deemed as dividend? - Held that:- In the instant case, the payment in question is made to the assessee which is a HUF. Shares are held by Shri. Gopal Kumar Sanei, who is Karta of this HUF. Th .....

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f the Company filed with ROC that the money towards share holding in the Company was given by the assessee/HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22)(e) of the Act, once the .....

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reason, judgment in C.P. Sarathy Mudaliar,[1971 (10) TMI 8 - SUPREME Court ] relied upon by the learned counsel for the appellant, will have no application. That was a judgment rendered in the context of Section 2(6-A)(e) of the Income Tax Act, 1922 wherein there was no provision like Explanation 3. - Civil Appeal No. 12274 of 2016 - Dated:- 4-1-2017 - A.K. SIKRI AND ABHAY MANOHAR SAPRE JJ. Mr. Santosh Mishra, Adv. for the Appellant. Mrs. Anil Katiyar, Adv. for the Respondent. JUDGMENT A.K. Sikr .....

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tion has arisen, which pertains to Assessment Year 2006-07, under the following circumstances: 3) The assessee herein had filed the return in respect of the said Assessment Year declaring his total income at ₹ 1,62,745/-. The Assessing Officer (for short, 'AO') carried out the assessment resulting into passing of assessment orders dated 31st December, 2008 whereby the net income of the assessee was calculated at ₹ 1,30,31,280/-. Obviously, number of additions were made which .....

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challenged those deletions. 4) Insofar as addition under Section 2(22)(e) of the Act is concerned, a sum of ₹ 1,20,10,988/- was added on this account. The assessee is a Hindu Undivided Family (HUF). During the previous year to the Assessment Year, the assessee had received certain advances from one M/s. G.S. Fertilizers (P) Ltd. (hereinafter referred to as the 'Company'). The Company is the manufacturer and distributor of various grades of NPK Fertilizers and other agricultural inp .....

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he Company and also the beneficial owner of shares, as it was holding more than 10% of voting power. On this basis, after noticing that the audited accounts of the Company was showing a balance of ₹ 1,20,10,988/- as Reserve & Surplus as on 31st March, 2006, this amount was included in the income of the assessee as deemed dividend. 5) In the appeal filed by the assessee, the aforesaid addition was affirmed by the Commissioner of Income Tax (Appeals) (for short 'CIT(A)'). Though, .....

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allotted to a HUF. On that basis, it was submitted that provisions of Section 2(22)(e) of the Act cannot be attracted. 6) We would like to reproduce that portion of Section 2(22)(e) of the Act at this stage, which is relevant for the instant appeal: S.2(22) of the Income Tax:- Dividend includes: xxx xxx xxx (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made .....

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company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but dividend does not include- xxx xxx xxx Explanation 3.- For the purposes of this clause, (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the p .....

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holders of the Company. It was also recorded that the assessee as shareholder was having 37.12% share holding. That was on the basis of shareholder register maintained by the Company. Taking aid of the provisions of the Companies Act, the CIT(A) observed that a shareholder is a person whose name is recorded in the register of the shareholders maintained by the Company and, therefore, it is the assessee which was registered shareholder. The CIT(A) also opined that the only requirement to attract .....

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t be made. For this purpose, the ITAT referred to the judgment rendered by its Mumbai Bench in the case of Binal Sevantilal Koradia (HUF) Vs. Department of Income Tax ITA No. 2900/Mum/2011, AY 2007-08 dated 10.10.2012 . In fact, the only exercise done by the ITAT in the said order was to quote from the aforesaid judgment with the observations that the issue is squarely covered by the said decision. In Koradia (HUF), it was held by the Tribunal that HUF cannot be said to be shareholder or a benef .....

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. The order of the High Court reveals that it has done nothing but to extract the language of Section 2(22)(e) of the Act and sustained the addition made by AO with one line observation, viz., 'the assessee did not dispute that the Karta is a member of HUF which has taken the loan from the Company and, therefore, the case is squarely within the provisions of Section 2(22)(e) of the Income Tax Act'. 10) The arguments before us remain the same. Mr. S.B. Upadhyay, learned senior counsel app .....

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e shareholder of a company is the individual who is registered as the shareholder ion the books of the company. The HUF, the assessee in this case, was not registered as a shareholder in books of the company nor could it have been so registered. Hence there is no gain-saying the fact that the HUF was not the shareholder of the company. 11) Learned Additional Solicitor General, on the other hand, after reading the relevant portions of the orders of AO and CIT(A), submitted that on the facts of th .....

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shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividen .....

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(whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder. (b) any payment on behalf of a shareholder, and (c) any payment for the individual benefit of a shareholder. [See: Alagusundaran Vs. CIT; 252 ITR 893 (SC)] 14) Certain conditions need to be fulfilled in order to attract tax under this clause. It is not necessary to stipulate other conditions. For our purposes, following conditions need to be fulfilled: (a) Payment is to be made .....

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HUF if he is, at any time during the previous year, beneficially entitled to not less than 20% of the income of such HUF. 16) In the instant case, the payment in question is made to the assessee which is a HUF. Shares are held by Shri. Gopal Kumar Sanei, who is Karta of this HUF. The said Karta is, undoubtedly, the member of HUF. He also has substantial interest in the assessee/HUF, being its Karta. It was not disputed that he was entitled to not less than 20% of the income of HUF. In view of th .....

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