TaxTMI 
TaxTMI 
2017 (1) TMI 331
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....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 ad....
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....hareholder 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....
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....xxx xxx xxx Explanation 3.- For the purposes of this clause, (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern." 7) Taking note of the aforesaid provision, the CIT(A) rejected the aforesaid contention of the assessee. The CIT(A) found that examination of annual returns of the Company with Registrar of Company (ROC) for the relevant year showed that even if shares were issued by the Company in the name of Shri. Gop....
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....on. In Koradia (HUF), it was held by the Tribunal that HUF cannot be said to be shareholder or a beneficial shareholder. Since these are the twin conditions to attract the provisions of Section 2(22)(e) of the Act, both have to be satisfied. As per the ITAT, since HUF, in law, cannot be a registered shareholder or a beneficial shareholder, provisions of Section 2(22)(e) would not be attracted. 9) As noticed above, the High Court, in the impugned judgment rendered in the appeal preferred by the Revenue, has reversed the judgment of the ITAT, thereby restoring the addition which was made by the AO. The order of the High Court reveals that it has done nothing but to extract the language of Section 2(22)(e) of the Act and sustained the addit....
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....g any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of 'dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually 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 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, ....
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.... association of persons or a body of individuals or a company. As Civil Appeal No. 12274 of 2016 Page 9 of 12 per Explanation 3(b), a person shall be deemed to have a substantial interest in a HUF if he is, at any time during the previous year, beneficially entitled to not less than 20% of the income of such HUF. 16) In the instant case, the payment in question is made to the assessee which is a HUF. Shares are held by Shri. Gopal Kumar Sanei, who is Karta of this HUF. The said Karta is, undoubtedly, the member of HUF. He also has substantial interest in the assessee/HUF, being its Karta. It was not disputed that he was entitled to not less than 20% of the income of HUF. In view of the aforesaid position, provisions of Section 2(22)(e) o....