LexRAMESHWAR LAL SANWARMAL versus COMMISSIONER OF INCOME-TAX, ASSAM
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1 .., \ RAMESHW AR LAL SANWARMAL v. COMMISSIONER OF INCOME-TAX, ASSAM December 5, 1979 [P. N. BHAGWATI AND R. S. PATHAK, JJ.] 369 Jnd~an Income Tax Act 1922-Section 2(6A) (e)-Scope of-Shares in a company registered i'n the name of Karta of HUF-Company advanced loans to business co11ctrns of HUF-/oans--if "deemed dividend". The assessee, a liindu Undivided Family, owned certain Shares in a private A 8 limited company in which the public \Vere not substantially interested. Though C the shares were beneficially owned by the Hindu Undivided Family, they stood registered in the name of its Karta. From out of its accumulated profits the company gave loans, in the assessment yea·r 1956-57, to three business concerns which \Vere owned by the assessee. Section 2(6A) (e) of the Indian Income Tax .Act, 1922 provided that where a ]private company in which public were not substantially interested gave loans to its shareholders from out of its accumulated profits such loans would be treated as "deemed dividend" in the D hands of the shareholders. The Income Tax Officer treated the loans as "deemed dividend" in the hands of the assessee on the grol,Jnd that though the shares stood in the name of the Karta, the assessee being the beneficial owner, the conditions of section 2(6A)- (e) were satisfied. Thil view of the Income Tax Officer was upheld by the Appellate Assistant Commissioner. E The Appellate Tribunal rejected the contentions of the assessee that the loans could not be taxe<l as "deemed div.idend" in its hands because it was not the registered owner of the shares; and (2) assuming that they could be treated as "deemed dividend" they could be taxed. ouly in the hands of the karta. The Tribunal referred six questions to the H-igh Court. Answering two out of the six questions, the High Court held that (1) the loans could not be treated as "deemed c1!ividend" in the assessee's hands because the term shareholder used in the section meant only a person Vi1hose name is recorded in the company's register of shareholders and (2) even assuming that the loans were "deemed dividend" they could be taxed onlY' in the hands of the registered shareholder (the Karta). The assessment made by the Income Tax Officer was accordingly set aside. In appeal to this Court, instead CJf questioning the correctness of the answers returned by the High Court the Revenue attacked only that part of the High Court's order \Vhich held that "deemed dividend" could be taxed only in the hands of the registered shareholder. Therefore the question before this Court was whether "deemed dividend" could· be taxed in the hands of the beneficial owner of shares or could be brought to tax only in the hands of the registered sharehclder. This Court answered that where share• are acquired with the funds of one person but are registered in the name of another it is the benefi- cial owner who should be taxed on the dividend on the shares and that this F G H 370 SUPREME COURT REPORTS [ 1980] 2 S.C.R. A principle applies equally to "deemed dividend" under the section. Even so~ this Court discharged the answer given by the High Court in favour of the assessee and substituted an a'n:swer in favour of the Revenue. Placing reliance on the decision of this Court in C.l.T. v. Saratliy Mudali•r (83 l.T.R. 170) where it was held that a loan advanced by a company to a beneficial owner did not fall within the mischief of section 2(6A)(e) the B assessee contended that loans in this case could not be taxed as "deemed divi- dend" in ill hands. The Revenue on the other hand contended that ( 1) since in the earlier case of Rtune-swar!al Sanwannal (82 I.T.R. 628) this Court had u11swered the refe- ~~ rence in favour of the Revenue and that decision wa~ final the later decision in '-, Sarathy Mudaliar's case would not be available to the assesoee; (2) although C the present question was not specifically considered by this Court on the eorlier occasion_ it must be held to have been impliedly decided against the a.ssessee and (3) that the decision in Sarathy Mudaliars case was incorrect and should be referred to a larger bench. HELD : The arguments of the Revenue are fallacious. \Vhen the Revenue came in appeal to this Court in the earlier case of Rarneswarlal Sanwarn1al it D challenged only the second part of the High Court's decision ignoring the first part. The result 'va<:> that the first part of the Hi
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