C.I.T. ANDHRA PRADESH versus C. P. SARATHY MUDALIAR

Citation: [1972] 1 S.C.R. 1076 · Decided: 12-10-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

1076 
CJ.T. ANDHRA PRADESH 
v. 
C. P. SARATHY MUDALIAR 
October 12, 1971 
[K. S. HEGDE AND H. R. KHANNA, JJ.J 
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 
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 
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 regis-
tered 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 
A 
B 
c 
D 
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. 
Kishanchand Lunidasing Bajaj v. C.J.T., Bangc./ore, 60 I.T.R. 5iJO, 
<ltstinguished. 
H 
• 
A 
B 
c 
.D 
• 
E 
F 
G 
H 
C.J.T. v. c. P. SARATHY (Hegde, /.) 
1077 
C1v1L APPELLATE JURISDICTION: Civil Appeals Nos. 2242 
and 2243 of 1968. 
Appeals by special leave from the judgment and order dated 
March 28, 1967 of the Andhra Pradesh High Court in Case 
Reference No. 2 of 1961. 
B. Sen, R. N. Sachthey and B. D. Sharma, for the appelllilnt 
(in both the appeals) . 
K. /ayaram, for the respondent (in both the appeals). 
[The Income Tax Appellate Tribunal stated the case as fol-
lows: 
Statement of Case 
"The assessee is a Hindu undivided family of which the karta 
is Sarathy and there are two adult members, Doraiswamy and 
Singaram. Sarathy holds 2, 797 shares, Doraiswamy I 00 shares 
and Singaram 100 shares of a limited company by name 'The 
Chittoor Motor Transport Company (Private) Ltd.: in which 
the public are not. 'substaQtially interested within the meaning 
of section 23A. 
The Shares were acquired with the funds pf 
the Hindu undivided family and, therefore, the shares were the 
property of the Hindu undivided family. 
There is no 
dispute 
about that. 
Tl(e dividend earned on these shares was thus also 
the income of the.Hindu undivided family and was b<ing assess-
ed accordingly. There was no dispute.about that either. Sarathy 
was also the Managing Director of the aforesaid company and 
the Managing Director's remuneration too was treated · and 
assessed as the income of the Hindu· undivided family. 
There 
was no dispute about tha.t also. 
In the two assessm1mts .

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