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2017 Supreme(SC) 16
SUPREME COURT OF INDIA
A.K. SIKRI, ABHAY MANOHAR SAPRE, JJ.
GOPAL AND SONS (HUF) – APPELLANTS
VERSUS
CIT KOLKATA-XI – RESPONDENTS
CIVIL APPEAL NO. 12274 OF 2016 (ARISING OUT OF SLP © NO. 22059 OF 2015)
Decided On : 04-01-2017
For the Appellants :- Santosh Mishra, Advocate.
For the Respondents:- Mrs. Anil Katiyar, Advocate
IMPORTANT POINT
When money towards share holding in the Company is given by the assessee/HUF but share certificates issued in the name of the Karta having substantial interest in the assessee/HUF, payment made to the HUF shall constitute deemed dividend for the karta.
Headnote:(a) Income Tax Act, 1961 – Section 2(22)(e), Explanation 3(a) – Concern – Means HUF or a firm or an association of persons or a body of individuals or a company – Person having substantial interest – If beneficially entitled to not less than 20% of the income of such HUF at any time during the previous year – Section 2(22)(e) would get attracted. (Para 15)
252 ITR 893 (SC) – Relied upon
(b) Income Tax Act, 1961 – Section 2(22)(e), Explanation 3(a) – Deemed dividend – Instantly money towards share holding in the Company given by the assessee/HUF but share certificates issued in the name of the Karta – However, payment made to assessee-HUF – Shares held by Karta, member of the HUF, having substantial interest in the assessee/HUF – Entitled to not less than 20% of the income of HUF – Section 2(22)(e) attracted – Payment made to the HUF shall constitute deemed dividend. (Para 16, 17)
ITA No. 2900/Mum/2011 – Referred
1972 SCR 1076 – Distinguished
Facts of the case:
The assessee, a Hindu Undivided Family (HUF), had filed the return declaring his total income at Rs. 1,62,745/-. The Assessing Officer carried out the assessment resulting into passing of assessment orders whereby the net income of the assessee was calculated at Rs. 1,30,31,280/-. Number of additions were made which contributed to the enhancement of income to the aforesaid figure, in contrast with the paltry income declared by the assessee. One addition was made on account of deemed dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961.
Insofar as addition under Section 2(22)(e) of the Act is concerned, a sum of Rs. 1,20,10,988/- was added on this account.
During the previous year to the Assessment Year, the assessee had received certain advances from one M/s. G.S. Fertilizers (P) Ltd.. In the audit report and annual return for the relevant period, which was filed by it before the Registrar of Companies (ROC), it was found that the subscribed share capital of the said Company was Rs. 1,05,75,000/- (i.e., 10,57,500 shares of Rs. 10/- each). Out of this, 3,92,500 number of shares were subscribed by the assessee which represented 37.12% of the total shareholding of the Company. From this fact, the AO concluded that the assessee was both the registered shareholder of the 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 Rs. 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.
In the appeal filed by the assessee, the aforesaid addition was affirmed by the Commissioner of Income Tax (Appeals) (for short 'CIT(A)').
The CIT(A) rejected the contention of the assessee.
The assessee approached the ITAT in appeal which was allowed holding that the ingredients of Section 2(22)(e) of the Act were not satisfied and, therefore, addition of the aforesaid nature could not be made.
The High Court has reversed the judgment of the ITAT, thereby restoring the addition which was made by the AO.
Finding of the Court:
Payment received by the HUF would constitute deemed dividend for the karta.
Result: Appeal dismissed.
JUDGMENT
A.K. Sikri, J.
The appellant/assessee, in the instant appeal, has raised following question of law for determination:
"Whether in view of the settled principle that 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 within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 especially in view of the term "concern" as defined in the Section itself ?"
2. The aforesaid question 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 Rs. 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 Rs. 1,30,31,280/-. Obviously, number of additions were made which contributed to the enhancement of income to the aforesaid figure, in contrast with the paltry income declared by the assessee. Here, we are concerned only with one addition which was made on account of deemed dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Suffice it to state that other additions were deleted by the Income Tax Appellate Tribunal (ITAT) and the position affirmed by the High Court, but the Revenue has not challenged those deletions.
4. Insofar as addition under Section 2(22)(e) of the Act is concerned, a sum of Rs. 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 inputs. In the audit report and annual return for the relevant period, which was filed by it before the Registrar of Companies (ROC), it was found that the subscribed share capital of the said Company was Rs. 1,05,75,000/- (i.e., 10,57,500 shares of Rs. 10/- each). Out of this, 3,92,500 number of shares were subscribed by the assessee which represented 37.12% of the total shareholding of the Company. From this fact, the AO concluded that the assessee was both the registered shareholder of the 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 Rs. 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, this addition was questioned by the assessee on various grounds, we would take note of the submission which is advanced before us as the challenge is confined only on the basis of said submission. The assessee had argued that being a HUF, it was neither the beneficial shareholder nor the registered shareholder. It was further argued that the Company had issued shares in the name of Shri Gopal Kumar Sanei, Karta of the HUF, and not in the name of the assessee/HUF as shares could not be directly 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 after the 31st day of May, 1987, by way of a
