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Deemed dividend – case of HUF , Karta , members and some related issues discussed in view of recent judgment of the Supreme Court. Suggestion to omit deeming provision in view of changed in circumstances..

Income Tax - By: - CA DEV KUMAR KOTHARI - Dated:- 11-1-2017 - Relevant provisions, references and links: Section 2(6-A)(e) of the Income Tax Act, 1922 - this was different in comparison to present provision. Section 2(22)(e) of the Income-tax act, 1961. Gopal and Sons (HUF) Versus CIT Kolkata-XI 2017 (1) TMI 331 - SUPREME COURT L. Alagusundaram Chettiar Versus Commissioner Of Income Tax 1996 (10) TMI 73 - SUPREME Court Commissioner Of Income-Tax, Madras I Versus L. Alagusundaram Chettiar 1976 (1 .....

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urn HUF was shown as member and HUF was having substantial stake in company. Funds for subscription for shares were provided by HUF that is to say investment was made by HUF and not by Karta, though share certificates were issued in name of Karta of HUF. In view of these facts HUF was owner, beneficial holder and registered member (as per Register of members and annual return). Registered share holder who is Karta of HUF, being Karta and also because it was not disputed that he was entitled to n .....

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given by company to HUF. What is not considered or reconsidered:- the issue whether a HUF can be registered as shareholder was not considered by the Supreme Court. Because it was not necessary for the reason that karta having substantial holding by way of shares registered in his name, and he being substantial stake holder, caused application of s. 2 (22) (e) in hands of HUF. Court held that in case of C.P. Sarathy Mudaliar, supra wherein Section 2(6-A)(e) of the Income Tax Act, 1922 was consid .....

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herwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of dividend . Though 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. Such a provision which is a deemed provision and fictionally creates cer .....

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since then. Therefore the judgment has continuing applicability since then. More care and caution was required by assessee: The author feels that more care and caution was required by the assessee HUF and its members in this case and distribution of shares in hands of other members and HUF could have been better option. Likewise loans could be obtained by HUF and other members in a manner that fiction could not be invoked. Learning: All aspects of factual situation and provisions should be consi .....

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