Gordhandas Khimji (HUF) vs Commissioner of Income Tax

K.S. Paripoornan, J.—At the instance of an assessee to Income Tax, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court:

"Whether the Tribunal was right in law in holding that the provisions of Section 2(6A)(e) of the Indian Income Tax Act, 1922, are applicable to the applicant''s case and the advances made by the company to the applicant are assessable to tax as deemed dividend u/s 2(6A)(e) of the Indian Income Tax Act, 1922 ?"

The respondent is the Revenue. We are concerned with the assessment year 1961-62. The assessee is a Hindu undivided family. The said family is a shareholder in a company known as Messrs. Bharat Plywood and Timber Products (Pvt.) Ltd. (hereinafter referred to as "the company"). The company is not one in which the public are substantially interested. As on December 15, 1959, there were debits in the accounts of the assessee-Hindu undivided family with the company to the extent of Rs. 4,61,038. The accumulated profits of the company on this date amounted to Rs. 4,54,290. The Income Tax Officer treated the debits in the name of the assessee-Hindu undivided family to the extent of Rs. 4,54,290 as deemed dividend u/s 2(6A)(e) of the Indian Income Tax Act, 1922. But, in the appeals, the Commissioner of Income Tax (Appeals) held that the accumulated profits for the purpose of Section 2(6A)(e) will only be Rs. 29,470, which represented the balance left in the profits at the close of the accounting period. The Revenue filed an appeal before the Appellate Tribunal and contended that the advances made during the earlier years should not go in reduction of the accumulated profits and in this perspective, the deemed dividend will come to Rs. 4,54,290. This plea was not accepted by the Appellate Tribunal. In the result, the amount which was treated as deemed dividend u/s 2(6A)(e) was only Rs. 29,470. Before the Tribunal, the assessee-Hindu undivided family had filed a cross-objection and contended that the shareholder in the company was and could only be the "karta" of the family, that a Hindu undivided family is not a legal entity and so the loans and advances made to the Hindu undivided family cannot be treated as deemed dividend u/s 2(6A)(e) of the Act. Evaluating the said contention, the Appellate Tribunal found that the application for allotment of shares of the company was made by the assessee-Hindu undivided family, that in the share register of the company the name of the shareholder was shown as the assessee-Hindu undivided family and that the dividends were also declared and distributed by the company to the assessee-Hindu undivided family. All along the line, the Hindu undivided, family alone figured as a shareholder of the company and not the "karta" of the Hindu undivided family. The Appellate Tribunal declined to go into the question whether the Hindu undivided family was rightly made a shareholder since it held that, as a fact, it was only the Hindu undivided family which was the shareholder appearing in the registers of the company and the loans and advances were made to the Hindu undivided family and, in this view, Section 2(6A)(e) of the Income Tax Act was clearly attracted. It is thereafter at the instance of the assessee that the question of law, formulated hereinabove, has been referred to this court for decision.

At the time of hearing, there was no appearance for the assessee. We heard counsel for the Revenue. We perused the appellate order of the Tribunal dated August 17, 1984, as also the statement of the case dated April 27, 1985, forwarded to this court. As a final fact-finding authority, the Appellate Tribunal has found that the shareholder of the company in the instant case was the Hindu undivided family--the assessee. The Hindu undivided family applied for allotment of shares and obtained dividends distributed by the company. For all intents and purposes, the shareholder was the Hindu undivided family. The loans and advances were made to the Hindu undivided family. The Hindu undivided family is the assessee. On these facts, Section 2(6A)(e) was clearly attracted. The Appellate Tribunal was justified in holding so. We, therefore, answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue.

The Income Tax reference is answered as above.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.