1967 (3) TMI 41 - HC - Income Tax

Shares held by karta and coparceners of HUF using family funds loan to joint family by company - loan given could not be assessed as dividend income of family

Summary

Issues: Interpretation of section 2(6A)(e) of the Indian Income-tax Act, 1922 regarding whether certain payments can be deemed as dividend income of a Hindu undivided family.

In the judgment delivered by the High Court of Andhra Pradesh, the case involved the assessment of whether certain amounts received by a Hindu undivided family should be considered as dividend income. The family, consisting of a karta and his two sons, held shares in a company, and received advances or loans from the company. The Income-tax Officer included these amounts as dividend income in the family's taxable income. The family objected, arguing that the payments were not made to the shareholders but for the benefit of another company. The Appellate Tribunal ruled in favor of the family, stating that the amounts should not be considered as dividend income. The Commissioner of Income-tax sought a reference to the High Court, which set aside the Tribunal's order and remanded the case for further consideration. However, the Supreme Court later held that the High Court exceeded its jurisdiction in setting aside the Tribunal's order. The case was remanded back to the High Court for determination.

The main issue revolved around the interpretation of section 2(6A)(e) of the Indian Income-tax Act, which defines dividend to include payments made to shareholders. The family's advocate argued that the family itself was not a shareholder, only the individual members were, and therefore, the payments should not be considered as dividend income. The court considered whether the payments fell under the second limb of the definition, i.e., whether they were made on behalf of or for the benefit of the shareholders. The court found no evidence to support that the payments were made for the benefit of the shareholders, as the family claimed the loans were for the benefit of another company. Consequently, the court ruled in favor of the assessee, stating that the amounts in question should not be deemed as dividend income of the Hindu undivided family.

In a separate referred case, the Income-tax Appellate Tribunal reconsidered the matter and reached a different conclusion against the assessee. However, due to the Supreme Court's decision setting aside the High Court's judgment and remanding the case, this reference was deemed not to arise, and no costs were awarded.