LexGOPAL AND SONS (HUF) versus CIT KOLKATA-XI
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A B c (2017] 1 S.C.R. 86 GOPAL AND SONS (HUF) V. CIT KOLKA1A-XI (Civil Appeal No. 12274 of2016) JANUARY 04, 2017 [A. K. SIKRI AND ADHAY MANOHAR SAPRE, JJ.) Income Tax Act, 1961 - s.2(22)(e), Explanation 3 - Deemed dividend - Appellant-assessee, an HUF subscribed to the shares of a compan~ Assessing Officer made certain addition to the income of assessee-HUF on account of deemed dividend - Assessee-llUF co/1/ended that it was neither the beneficial shareholder nor registered shareholder and as the shares of rhe company were .in rhe name of the Karta of HUF and not in name of the HUF. s.2(22)(e) was not attracted - Held: Ar per Explanation J(a) "concern", inter D . alia, means HUF - As per, Explanation 3(b) a person is dee111ed lo have a substantial imerest in a HUF if he is beneficially entitled to · nor less than :20% of rhe income of such Hl./F - In rhe insranl case, shares are held by Karra who is u11doubtedly rhe 111e111ber of assessee- HUF - He also has substanlial interesr in HUF and is entirled to not E less rhan 20% of the income of HUF - Therefore, provisions of s.2(22)(e} are attracted. Income Tax Act, 1961 -.s.2(22}(e) - Deeming provision - Held: The Section creares a ficrion bringing any amount paid otherwise . than as a dividend illlo the net of dividend under certain F circumstances - Such a deemed provision which fictionally creates certain kinds of receipts as dividends, to be given strict interpretation - VnleJs all the conditions co/1/ained in rhe said 'provision are fulfilled, the receipt cannot be deemed as dividends '-- In case of doubt' where two i•iews are p=ible, benefit shall accrue in favour - of the assessee. -- · - G H Words and phrases: Dividend - Meaning of. in the· context of s.2(22)(e) of Income Tax Act, 1961. Dismissing the -appeal, the Court HELD: 1.1 The dividend taken note of in Section 2(22)(c) is a deemed dividend and not a real dividend. Loan or payment ~ 86 . ·- 1 I GOPAL AND SONS (HUF) v. CIT KOLKATA-Xl mad~ by the company to its shareholder is actnally 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 'divide11d' and made it taxable at the hands of the said shareholder. Therefore, such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled, the receipt cannot be deemed as dividends. Further, in case of doubt or where two views are possible, benefit shall accrue in favour Qf the assessee. [Para 12] [92-D-F] 1.2 In the instant case, the payment in question is made to the :.ssessee which is a HUF. Shares are held by Karta of this HUF. The said Karta is the member of HUF also having substantial interest in the HUF, being its Karta. He was entitled to not less than 20% of the income of HUF. In view of the said position, provisions of Section 2(22)(e} of the Act get attracted and it is not even necessary to determine as to whether HUF can, in law, be beneficial shareholder or registered shareholder in a Company. [Para 16] [93-D-F] 1.3 From the audited annual return of the Company filed with ROC, it is found that the money towards shareholding in the . Company was given by the assessee/HUF. Though, the share certificates were issued in the name of the Karta, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. It cannot be doubted that it ls the beneficial shareholder. Even presuming that it is not a registered shareholder, as per tl)e provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and the shareholder is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. This is the effect of Explanation 3 to the said Section. [Para 17] [93-F-G] CIT, Andhra Pradesh v. C.P Sarathy Mudaliar [1972] SCR 1076 - held not applicable. 87 A B c D E F G H 88 SUPREME COURT REPORTS [2017] 1 S.C.R. A Bina! Sevanti/a/ Koradia (HUF) v. Department of Income Tax ITA No. 2900/Mum/2011; Alagusz111dara11 v. CIT 252 ITR 893 (SC) - r
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