{"id":202776,"date":"1979-12-05T00:00:00","date_gmt":"1979-12-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/rameshwar-lal-sanwarmal-vs-commissioner-of-income-tax-on-5-december-1979"},"modified":"2017-03-30T03:34:02","modified_gmt":"2017-03-29T22:04:02","slug":"rameshwar-lal-sanwarmal-vs-commissioner-of-income-tax-on-5-december-1979","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/rameshwar-lal-sanwarmal-vs-commissioner-of-income-tax-on-5-december-1979","title":{"rendered":"Rameshwar Lal Sanwarmal vs Commissioner Of Income-Tax, … on 5 December, 1979"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Rameshwar Lal Sanwarmal vs Commissioner Of Income-Tax, … on 5 December, 1979<\/div>\n
Equivalent citations: 1980 AIR 372, \t\t 1980 SCR (2) 369<\/div>\n
Author: P Bhagwati<\/div>\n
Bench: Bhagwati, P.N.<\/div>\n
           PETITIONER:\nRAMESHWAR LAL SANWARMAL\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME-TAX, ASSAM\n\nDATE OF JUDGMENT05\/12\/1979\n\nBENCH:\nBHAGWATI, P.N.\nBENCH:\nBHAGWATI, P.N.\nPATHAK, R.S.\n\nCITATION:\n 1980 AIR  372\t\t  1980 SCR  (2) 369\n 1980 SCC  (2) 371\n\n\nACT:\n     Indian Income  Tax Act 1922-Section 2(Income) (e)-Scope\nof-Shares in  a company\t registered in\tthe name of Karta of\nHUF-Company advanced  loans to\tbusiness  concerns  of\tHUF-\nloans-if \"deemed dividend\".\n\n\n\nHEADNOTE:\n     The assessee,  a Hindu  Undivided Family, owned certain\nshares in a private limited company in which the public were\nnot  substantially   interested.  Though   the\tshares\twere\nbeneficially owned by the Hindu Undivided Family, they stood\nregistered in  the name\t of  its  Karta.  From\tout  of\t its\naccumulated  profits   the  company   gave  loans,   in\t the\nassessment year\t 1956-57. to  three business  concerns which\nwere owned  by The  assessee. Section 2(6! (e) of the Indian\nIncome Tax  Act, 1922  provided that where a private company\nin which public were not substantially interested gave loans\nto its shareholders from out of its accumulated profits such\nloan would  be treated\tas \"deemed dividend\" in the hands of\nthe shareholders.\n     The Income\t Tax officer  treated the  loans as  \"deemed\ndividend\" in  the hands\t of the\t assessee on The ground that\nthough the  shares stood  in the  name\tof  the\t Karta,\t the\nassessee being\tthe  beneficial\t owner,\t the  conditions  of\nsection 2(6A)-(e)  were satisfied.  This view  of the Income\nTax  officer   was  upheld   by\t the   Appellate   Assistant\nCommissioner.\n     The Appellate  Tribunal rejected the contentions of the\nassessee that  the loans  could\t not  be  taxed\t as  \"deemed\ndividend\" in  its hands\t because it  was not  the registered\nowner of  the shares;  and (2)\tassuming that  they could be\ntreated as \"deemed dividend\" they could be taxed only in the\nhands of  the karta.  The Tribunal referred six questions to\nthe High Court.\n     Answering two  out of  the si questions, the High Court\nheld that  (1) the  loans could\t not be\t treated aS  \"deemed\ndividend\"  in\tthe  assessee's\t  hands\t because   the\tterm\nshareholder used  in the  section meant\t only a person whose\nname is\t recorded in  the company's register of shareholders\nand (2)\t even assuming that the loans were \"deemed dividend\"\nthey could  be taxed  only in  the hands  of the  registered\nshareholder (the  Karta). The  assessment made by the Income\nTax officer was accordingly  set aside.\n     In appeal\tto this\t Court, instead\t of questioning\t the\ncorrectness of\tthe answers  returned by  the High Court the\nRevenue attacked  only that  part of  the High Court's order\nwhich held  that \"deemed   dividend\"  could be taxed only in\nthe hands  of  the  registered\tshareholder.  Therefore\t the\nquestion before\t this Court  was whether  \"deemed  dividend\"\ncould be  taxed in  the hands  of the  beneficial  owner  of\nshares or  could be  brought to tax only in the hands of the\nregistered  shareholder.  This\tCourt  answered\t that  where\nshares are  acquired with  the funds  of one  person but are\nregistered in the name of another it is the beneficial owner\nwho should  be taxed  on the dividend on the shares and that\nthis\n370\nprinciple applies  equally to  \"deemed dividend\"  under\t the\nsection. Even  so, this Court discharged the answer given by\nthe High  Court in favour of the assessee and substituted an\nanswer in favour of the Revenue.\n     Placing reliance  on the  decision\t of  this  Court  in\nC.I.T.. v.  Sarathy Mudaliar  (83 I.T.R.  170) where  it was\nheld that a loan advanced by a company to a beneficial owner\ndid not\t fall within  the mischief  of section\t2(6A)(e) the\nassessee contended  that loans\tin this\t case could  not  be\ntaxed as \"deemed dividend\" in its hands.\n     The Revenue  on the other hand contended that (I) since\nin the earlier case of Rameswarlal Sanwarmal (82 I.T.R. 628)\nthis Court  had answered  the reference\t in  favour  of\t the\nRevenue and  that decision  was final  the later decision in\nSarathy Mudaliar's  case  would\t not  be  available  to\t the\nassessee;  (2)\t although  the\t present  question  was\t not\nspecifically  considered   by  this  Court  on\tthe  earlier\noccasion it  must be  held to  have been  impliedly  decided\nagainst the  assessee and  (3) that  the decision in Sarathy\nMudaliar's case\t was incorrect\tand should  be referred to a\nlarger bench.\n^\n     HELD: The arguments of the Revenue are fallacious. When\nthe Revenue came in appeal to this Court in the earlier case\nof Rameswarlal\tSanwarmal it challenged only the second part\nof the\tHigh Court's  decision ignoring\t the first part. The\nresult was  that the first part of the High Court's decision\nthat loans advanced to The business concerns of a beneficial\nowner of  shares could\tnot be regarded as 'deemed dividend\"\nin his\thands and  that the  loans in the  sent case did not\nfall within  the meaning of section 2(6A)(e) remained intact\nand unaffected\tby the\tdecision of  this Court.  This Court\ncould not  have answered  the  first  question\tagainst\t the\nassessee without  over-ruling the  first part  of  the\tHigh\nCourt's decision.  However, through inadvertence, this Court\nset  aside  the\t High  Court's\tanswer\twithout\t considering\nwhether this  part of tile decision was right or wrong. When\nno contention  was raised on behalf of the Revenue that even\nif the\tassessee was  not  a  registered  shareholder  loans\nadvanced to its business concerns would be \"deemed dividend\"\nin its\thands and  there was  no occasion  for this Court to\nconsider the question, from the mere fact that an answer was\ngiven in  favour of the Revenue, it cannot be said that this\ncontention was impliedly decided in its favour. [376 C-H]\n     2. The  proper Way\t of looking  at the decision of this\nCourt in Rameswarlal Sanwarmal would be to regard the answer\ngiven in  favour of  the Revenue  to be confined only to the\naspect considered  and decided\tby this\t Court, namely, that\n\"deemed dividend\"  did not  stand on  any different  tooting\nfrom actual  dividend and  just as actual dividend is liable\nto be  taxed in\t the hands  of the beneficial 6 owner of the\nshares. so  too \"deemed\t dividend\" must be held liable to be\ntaxed ill  the hands of the beneficial owner. This Court did\nnot consider  whether a\t loan to a beneficial owner could be\nregarded as \"deemed dividend\". Therefore, this aspect of the\nquestion still\tremained to  be answered  and it was open to\nthe assessee  to contend  that the  loans  advanced  to\t its\nbusiness concerns could not be regarded as \"deemed dividend\"\nwithin the meaning of the section since the assessee was not\na! registered shareholder. [377 A-D]\n     3 (1) The decision of this Court  in Sarathy Mudaliar's\ncase laid  down the  law correctly  and there  is no need to\nrefer the case to a larger bench. The\n371\nquestion whether  a loan  advanced to\tbeneficial  owner of\nshares would  be liable\t to be regarded as \"deemed dividend\"\nwas  neither   raised  nor   considered\t by  this  Court  in\nRameswarlal Sanwarmal's\t case but  came up for consideration\nfor the first time in Sarathy Mudaliar's case only. There is\nthus no conflict between the two decisions, [77 E-l]\n     (b) It is only where a loan is advanced by a company to\na registered  shareholder   the other  conditions set out in\nthe section  are satisfied that the amount of the loan would\nbe liable to be regarded as \"deemed dividend\". The amount of\nloan would not fall within The mischief of the section if it\nis granted to a beneficial owner of the shares. [378 E-F]\n     In the  instant case the loans were advanced not to the\nregistered shareholder\tbut to\tthe business concerns of the\nbeneficial owner.  Hence they  could not  be regarded  loans\nadvanced to  a shareholder of the company within the meaning\nof the section. [378 H\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 133 or
\n1979.\n<\/p>\n
     Appeal by\tSpecial Leave  from the\t Judgment and  order
\ndated 13-6-1972\t of the\t Assam\tHigh  Court  in\t Income\t Tax
\nReference No. 2\/64.\n<\/p>\n
     H. M. Verma and N. R. Choudhary for the Appellant.
\n     S.C. Manchanda,  S.P. Nayar  and Miss A. Subhashini for
\nthe Respondent.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     BHAGWATI, J.-This\tappeal by  special  leave  raises  a
\nquestion of  law relating  to the  interpretation of section
\n2(6A) (e)  of the  Indian Income-Tax Act, 1922. The question
\nis in  fact  concluded\tby  a  decision\t of  this  Court  in
\nCommissioner of\t Income-tax v. C.P. Sarathy Mudaliar<\/a> but, it
\nhas been  argued on behalf of the Revenue that this decision
\nis in  conflict with an earlier decision given by this Court
\nin Commissioner\t of Income-tax v. Rameshwarlal Sanwarmal and
\nhence the  question should be referred to a larger Bench. We
\nshall presently\t consider these\t two decisions,\t but we\t may
\npoint out  straight-away that,\tin our\topinion, there is no
\nconflict between  these two  decisions and  the question  is
\ncompletely cover  d  by\t the  decision\tin  Commissioner  of
\nIncome-tax- v.\tC. P.  Sarathy Mudaliar<\/a>\t (supra)). The facts
\ngiving rise  to the  appeal are\t not in\t dispute and  we may
\nbriefly state  the same\t in  order  to\tappreciate  how\t the
\nquestion arises for determination.\n<\/p>\n
     The assessee  is the  Hindu Undivided  Family  of\tM\/s.
\nRameshwarlal  Sanwarmal\t consisting  of\t S.  M.\t Saharia  as
\nmanager and karta and
\n372<\/span>
\nhis wife  and a minor son. The assessment year with which we
\nare  concerned\tin  the\t appeal\t is  1956-57,  the  relevant
\naccounting year\t being the  year  ending  Ramanavami  Sambat
\n2012, that  is, 18th  April, 1956.  During  this  assessment
\nyear, the  assessee was\t the  beneficial  owner\t of  certain
\nshares in  a private limited company called Shyam Sunder Tea
\nCo. (P)\t Limited. These\t shares though beneficially owned by
\nthe assessee  stood in\tthe name  of  S.M.  Saharia  in\t the
\nregister of  shareholders of  the Company. The assessee also
\nowned 3\t business concerns,  namely, Nilmony Shop, Saharia &
\nCo. and Saharia Industrial Corporation. The Company advanced
\nloans to  these 3  business  concerns  during  the  relevant
\nassessment year\t and since  it was a company in which public
\nwere not  substantially interested,  a question arose in the
\nassessment of  the assessee to income-tax, whether the loans
\nadvanced to  these 3  business concerns could be regarded as
\n“deemed dividend”  of the assessee under section 2(6A)(e) of
\nthe Act? ‘he Income-tax officer took the view that the loans
\nadvanced to the 3 business concerns were attributable to the
\naccumulated profits  of the  company to\t the extent  of\t Rs.
\n4,48,045 and  since the\t assessee which owned the 3 business
\nconcerns was  the beneficial owner of the shares standing in
\nthe name  of S.\t M. Saharia, the conditions of section 2(6A)\n<\/p>\n
(e) were  satisfied and the loans were liable to be regarded
\nas “deemed  dividend” taxable  in the  hands of the assessee
\nunder section  2(6A) (e).  The assessee\t preferred an appeal
\nagainst the  order of assessment but the Appellate Assistant
\nCommissioner agreed  with the  view taken  by the Income-tax
\nofficer and held that since S. M. Saharia held shares in the
\ncompany as  representing the  assessee and  the\t loans\twere
\nadvanced  to  the  three  business  concerns  belonging\t the
\nassessee out  of the accumulated profits of the company, the
\nIncome-tax officer  was justified  in treating\tthe loans as
\n“deemed dividend”  under section  2(6A) (e); and taxing them
\nin the\thands of  the assessee.\t The matter  was carried  in
\nfurther appeal\tto the\tTribunal and  several arguments were
\nadvanced  on   behalf  of   the\t  assessee   resisting\t the
\napplicability of  section 2(6A)\t (e), but of them, there are
\ntwo which  are material for our purpose and they are: first,
\nthat since  the assessee  was not  a  registered  holder  of
\nshares in  the company,\t the loans  advanced  to  the  three
\nbusiness concerns  of the  assessee could not be regarded aS
\nloans advanced\tto a  share-holder  so\tas  to\tattract\t the
\napplicability of  section 2(6A)\t (e); and  secondly, even if
\nthe loans  could  be  treated  as  “deemed  dividend”  under
\nsection 2(6A) (e), they could be taxed only ill the hands of
\nS. M.  Saharia, the  registered shareholder and not : in the
\nhands of  the, assessee. Both these arguments were negatived
\nby the\tTribunal and  so also  were  the  other\t subordinate
\narguments and  the appeal  was rejected\t and the  assessment
\nconfirmed. This led
\n373<\/span>
\nto a  reference application  by\t the  assessee\tand  on\t the
\napplication, five  A. questions\t of law were referred by the
\nTribunal to  the  High\tCourt.\tThere  were,  in  fact,\t six
\nquestions but  for the\tpurpose of the present appeal, it is
\nnot necessary  to refer\t to the\t first\tquestion,  since  it
\nrelated to the assessment year 1955-56 and it raised a point
\nof limitation  which was ultimately decided in favour of the
\nassessee and  there is\tno dispute  about it. The other five
\nquestions related to the taxability of the loans advanced to
\nthe three  business concerns  of  the  assessee\t as  “deemed
\ndividend” under section 2((A)(e) and each of these questions
\nbrought in  issue different  aspect of taxability. It is the
\nfirst of  these questions  which is  material and we may re-
\nproduce it as follows:\n<\/p>\n
\t  “Whether on  the facts and in the circumstances of
\n     the case,\tand on a true interpretation of the terms of
\n     section 2(6A)  (e) of  the Income-tax  Act,  1922,\t the
\n     Tribunal was  right ill holding that the amounts of Rs.
\n     2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as
\n     dividends in  the hands of the applicant H.U.F. for the
\n     assessment year  1955-56 and 1956-57 respectively, when
\n     the shares\t were registered  in the  name of  Sri S. M.
\n     Saharia, the karta of the family ?”<\/p><\/blockquote>\n
     This question  referred to\t both the  assessment  years
\n1955-56 and 1956-57, but we are not concerned in this appeal
\nwith the controversy relating to the assessment year 1955-56
\nand hence  we shall confine ourselves only to the assessment
\nyear 1956-57.\n<\/p>\n
     Now  two\tdistinct  aspects  were\t comprised  in\tthis
\nquestion and both were argued before the High Court. One was
\nwhether the loans advanced to the three business concerns of
\nthe assessee  could be\tregarded as “deemed dividend” within
\nthe meaning  of section\t 2(6A) (e) and the other was whether
\nthese loans,  even if regarded as “deemed dividend” could be
\ntaxed in  the hands  of the assessee. The High Court decided
\nboth these aspects of the question in favour of the assessee
\nand held  that the  word “share-holder” in section 2(6A) (e)
\nmeant\t  registered  share-holder  or\tin  other  words,  a
\nshareholder whose  name is  recorded in\t the Register of the
\ncompany as the holder of the shares and since the advance in
\nthe present  case was  made to\tthe assessee which was not a
\nregistered share-holder, it could not be regarded as “deemed
\ndividend” within  the meaning  of section 2(6A) (e) and that
\neven if\t it be\tassumed that  the advance  was liable  to be
\nregarded as  “deemed dividend”\tunder section  2(6A) (e), it
\ncould be  taxed as  dividend income  only of  the registered
\nshare-holder and  not Only  of the assessee. This view taken
\nby the\tHigh Court  rendered it\t unnecessary to\t decide\t the
\nother four questions and the High Court
\n374<\/span>
\naccordingly declined  to consider  them. The  result of this
\ndecisions was  that  the  assessment  made  by\tthe  Revenue
\nAuthorities was set aside in so far as it included the loans
\nadvanced by  the company  to the  three business concerns of
\nthe assessee as deemed dividend and taxed it in the hands of
\nthe assessee.\n<\/p>\n
     The Revenue,  being aggrieved  by the  decision of\t the
\nHigh Court,  preferred an  appeal  after  obtaining  special
\nleave  of  this\t Court.\t Now  it  seems\t that  through\tsome
\ninadvertence which  is difficult  to understand, the Revenue
\nattacked only that part of the order of the High Court which
\nheld that  the “deemed\tdividend” could\t be assessed  to tax
\nonly in\t the hands  of S.M.  Saharia, the  registered share-
\nholder and  no in the hands of the assessee which was merely
\nthe beneficial owner cf the shares. Neither in the statement
\nof case\t filed on  its behalf  nor  in\tthe  course  of\t the
\narguments the  Revenue assailed\t the correctness of the view
\ntaken by  the High  Court that\tsince the assessee was not a
\nregistered shale  holder, loans\t advanced  to  the  assessee
\ncould not  be regarded\tas “deemed  dividend” under  section
\n2(6) (e). The result was that the only question that came to
\nbe considered by this Court was whether the “deemed dividend
\nunder section  2(6A)(e) could  be taxed\t in the hands of the
\nbeneficial owner of the shares or it could be brought to tax
\nonly in\t the assessment\t of the\t registered share-holder and
\nthe view  taken was  that where the shares acquired with the
\nfunds of  one person are held ill the name of another, it is
\nthe former who is assessable to tax on the dividend on those
\nshares and this principle would apply equally on the ‘deemed
\ndividend’  under   section  2(6A)(e).  This  Court  did\t not
\nconsider whether  the loans  granted to\t the three  business
\nconcerns o  the assessee could at all be regarded as ‘deemed
\ndividend’ within  the meaning  of section  2(6A)(e) when the
\nassessee was  not a registered share-holder and the decision
\nof the\tHigh Court to the effect that the assessee not being
\na registered  share-holder, the loan advanced to it advanced
\nnot be\tregarded as ‘deemed dividend’ under section 2(6A)(e)
\nremained undisturbed. Now obviously, so long as the decision
\nof the\tHigh Court  on this  point was\tnot over-ruled,\t the
\nquestion whether  the amount  of the  loans was\t taxable  as
\n“deemed dividend”  in the hands of the assessee could not be
\nanswered in  favour of the Revenue. But sometimes even Homer
\nnods and through same unfortunate inadvertence for which the
\ncounsel appearing  on behalf  of the  assessee in  that case
\nmust accept  full responsibility,  this Court discharged the
\nanswer given by the High Court in favour of the assessee and
\nin its\tplace  substituted  an\tanswer,\t in  favour  o\tthe,
\nRevenue.  This\t decision  of\tthe  Court  is\treported  in
\nCommissioner  of   Income-tax  v.  Rameshwar  Lal  Sanwarlal
\n(supra).\n<\/p>\n
375<\/span><\/p>\n
     Since the\tfirst question\trelating to  the  assessment
\nyear 1956-57  was answered  by this  Court in  favour of the
\nRevenue,  the\tReference  went\t  to  the   High  Court\t for
\nconsideration of  the remaining\t questions that had not been
\nanswered by  the High  Court. It appears that at the hearing
\nof the\tReference the  first two  out of  the remaining four
\nquestions were\tnot pressed  on behalf\tof the assessees and
\nonly the  last two  questions were  argued before  the\tHigh
\nCourt. Both  these questions  were considered  by  the\tHigh
\nCourt and  they were  answered in  favour of the Revenue and
\nagainst the  assessee. The  assessee thereupon preferred the
\npresent appeal\tafter  obtaining  special  leave  from\tthis
\nCourt.\n<\/p>\n
     There is  only one contention advanced on behalf of the
\nassessee in  support or the appeal, namely, that the amounts
\nof the\tloans advanced to the three business concerns of the
\nassessee could\tnot be regarded was ‘deemed dividend’ within
\nThe meaning of section 2(6A)(e) since the assessee was not a
\nregistered share-holder\t of the company. This contention was
\nsought to  be supported\t by the\t decision of  this Court  in
\nCommissioner of Income-tax v. C.P. Sarathy Mudaliar<\/a> (supra).
\nNow there can be no doubt that the decision of this Court in
\nC.I.T. v.  C.P. Sarathy\t Mudaliar<\/a> (supra)  lays down that it
\nisl only  where a  loan\t is  advanced  by  a  company  to  a
\nregistered share-holder out of its accumulate(i profits that
\nit would be liable to be regarded as ‘deemed dividend’ under
\nsec. 2(6A)(e)  and a loan to a beneficial owner of the share
\ndocs not  come within  the mischief  of that  section and if
\nthis decision represents the correct law on the subject, the
\namounts of  loans advanced  to the three business concerns o
\nthe assessee  would not possibly be brought within the net o
\ntaxation as  ‘deemed dividend’.\t But the  argument urged  on
\nbehalf of  the Revenue\twas that  it was  not  open  to\t the
\nassessee to  raise this\t contention based on the decision in
\nCommissioner  of   Income-tax  v.  C.  P.  Sarathy  Mudaliar<\/a>
\n(supra), since\tit was\tcovered by  the first question which
\nhad already  been answered  in favour of the Revenue by this
\nCourt. The  Revenue conceded  That this\t contention was\t not
\nspecifically raised before the Court when the first question
\ncame to\t be considered\tbut it\tmust be\t held to  have\tbeen
\nimpliedly decided  against the\tassessee,  since  the  first
\nquestion could\tnot be answered ill favour of the Revenue on
\nany other  hypothesis. This  argument of  the  Revenue\tdoes
\nappear to  be very  plausible It  first blush,\tbut if it is
\nscrutinised  closely   it  will\t  be  apparent\tthat  it  is
\nfallacious  and\t cannot\t be  accepted.\tThe  most  important
\ncircumstance which it ignores is that when the Reference was
\nfirst heard  by the  High  Court,  the\tfirst  question\t was
\ndecided in  favour of  the assessee  on two  counts, one was
\nthat since the assessee was not a registered share-holder of
\nthe company, the loans advanced to the three business
\n376<\/span>
\nconcerns of  the assessee  could not  be regarded as ‘deemed
\ndividend’ within  the meaning  of section  2(6A) (e) and the
\nother was  that even  if they  could be\t treated as  ‘deemed
\ndividend’ under\t section 2(5A) (e), they could be taxed only
\nin the\thands of  S. M. Saharya, the registered share-holder
\nand not\t in the\t hands of  the assessee\t who  was  merely  a
\nbeneficial owner  of the  shares. When the Revenue preferred
\nan appeal  against the\tjudgment  of  the  High\t Court,\t the
\nRevenue should\thave assailed the decision of the High Court
\nin both\t its limbs,  but through  some inadvertence which is
\ndifficult to  understand,  the\tRevenue\t challenged  by\t the
\nsecond limb  of the  decision ignoring completely the first.
\nThe result  was that the decision of the High Court that the
\namounts of  loans advanced to the three business concerns of
\nthe assessee  did not  fall within the definition of ‘deemed
\ndividend’ in section 2(6A)(e) remained intact and unaffected
\nby the decision of this Court in the appeal. Now, it is true
\nthat this  Court could\tnot have answered the first question
\nagainst the  assessee without  over-ruling this\t part of the
\ndecision or  the High  Court, but  through some\t unfortunate
\nerror, this  Court set\taside the  answer given\t by the High
\nCourt in  favour of the assessee without considering whether
\nthis part  of the  decision of\tthe High  Court was  right o
\nwrong. When  no contention  was\t raised\t on  behalf  of\t the
\nRevenue before\tthis Court  that the  decision of  the\tHigh
\nCourt on  this point  was wrong\t and that  even\t though\t the
\nassessee was  not a  registered shareholder,  the amounts of
\nloans  advanced\t to  the  three\t business  concerns  of\t the
\nassessee  were\tstill  liable  to  be  regarded\t as  “deemed
\ndividend” under\t section 2(6A)\t(e) and\t no such  contention
\nformed the  subject-matter of  discussion before  this Court
\nand this  Court had, therefore, no occasion to consider this
\nquestion, it  is difficult  to see how it can be said merely
\nfrom the answer given by this Court in favour of the Revenue
\nthat this  contention was impliedly decided in favour of the
\nRevenue. It  would be  straining logic to an absurd limit to
\nsay that  though this contention was not raised, not argued,
\nnot discussed  and not\tdecided, yet it must be held to have
\nbeen impliedly decided because through an error committed by
\nthis Court,  an answer was given in favour of the Revenue in
\nignorance of  the true\tposition. lt would also not be right
\nto hold\t that merely because this Court erroneously answered
\nthe first  question against the assessee without considering
\nwhether the  view taken\t by the High Court on this point was
\nincorrect, the\tassessee must  be precluded  from raisin the
\ncontention that\t the assessee  not being a registered share-
\nholder, the  amounts of loans advanced to the three business
\nconcerns of  the assessee did not fall within the definition
\nof “deemed  dividend” under section 2(6A)(e). Why should the
\nassessee, which\t had the  decision of the High Court of this
\npoint in its favour and
\n377<\/span>
\nwhich decision was not assailed by the Revenue in the appeal
\nand which  remained undisturbed by this Court, be prejudiced
\non account  of an  obvious error committed by the court. The
\nproper way of looking at the decision of this Court would be
\nto regard  the answer  given in\t favour of the Revenue to be
\nconfined only  to the  aspect considered and decided by this
\nCourt. The  only aspect considered by this Court was whether
\nthe “deemed dividend” under section 2(6A) (e) could be taxed
\nin the\thands of  the beneficial  owner of  the shares or it
\ncould be  assessed to  only in\tthe hands  of the registered
\nshareholder, and  this Court held that “deemed dividend” did
\nnot stand  on any different footing from actual dividend and
\njust as\t actual dividend was liable to be taxed in the hands
\nof the\tbeneficial owner  of the  shares,  so  also  “deemed
\ndividend” must\tbe held liable to be taxed in the assessment
\nof the\tbeneficial owner.  This Court  did not\tdecided\t the
\nquestion whether  a loan  advanced to  a beneficial owner of
\nthe shares  can be  regarded as “deemed dividend” within the
\nmeaning of  section 2(6A)  (e) an  the answer  given by this
\nCourt in  favour of  the Revenue cannot be said to extend to
\nthis aspect  of the question. We would, therefore, hold that
\nthe first  question still  remains to  be answered so far as
\nthis aspect  of the  question is concerned and it is open to
\nthe, assessee  to contend that the amounts of loans advanced
\nto the\tthree business concerns of the assessee could not be
\nregarded as  “deemed  dividend”\t under\tsection-,  2(6A)(e),
\nsince the assessee was not a registered shareholder.\n<\/p>\n
     It is  also obvious  from what  we have said above that
\nthere is  no conflict between the decisions of this Court in
\nC.I.T. v.  Rameswarlal Sanwarmal  and C.I.T. v. C.P. Sarathy
\nMudaliar  (supra).   The  question   whether,  on  a  proper
\nconstruction of\t section 2(6A)\t(e), a\tloan  advance  to  a
\nbeneficial owner  of  the  shares  would  be  liable  to  be
\nregarded Ll;  “deemed dividend”\t was not  raised  or  argued
\nbefore this  Court in  C.I.T.. v.  Rameswarlal Sanwarmal and
\nthis Court  was not called upon to decide it and hence there
\nis no  discussion about it in the judgment of this Court nor
\nis there  any decision\ton it.\tIt is only in the subsequent
\ndecision in  C.I.T.. v.\t C. P. Sarathy Mudaliar<\/a> (supra) that
\nthis question  came up\tfor the first time before this Court
\nfor consideration  and this  Court held that when sec. 2(6A)\n<\/p>\n
(e) speaks  of a  “shareholder” it  refers to the registered
\nshareholder and not to the beneficial owner and hence a loan
\ngranted to  a beneficial  owner of  the shares\twho is not a
\nregistered shareholder cannot be regarded as a loan advanced
\nto a  “shareholder” of\the company  so as  to be  within the
\nmischief of  section 2(6A(e).  There is\t thus no conflict at
\nall between  the  decisions  in.  C.I.T.  v.  C.  P  Sarathy
\nMudaliar<\/a> (supra\t and C.I.T.  v.\t Rameswarlal  Sanwarlal.  In
\nfact, Mr. Justice Hegde was, a common Member of the Bench in
\nboth
\n378<\/span>
\nthe cases  and the  subsequent decision\t in C.l.T.  v. C. P.
\nSarathy Mudaliar<\/a>  was given  within less  than a month after
\nthe decision  in C.l.T.\t v. Rameshwarlal  Sanwarmal.  lt  is
\nimpossible to  believe that  Mr. Justice Hegde was oblivious
\nof the\tdecision in C.I.T.. v. Rameswarlal Sanwarmal when he
\ndelivered the judgment in C.l.T. v. C. P. Sarathy Mudaliar.\n<\/p>\n
     The Revenue  lastly  contended  that  the\tdecision  in
\nC.I.T. v.  C.P. Sarathy\t Mudaliar<\/a> is  incorrect and  we must
\nrefer the  present case to a larger Bench. Now it is obvious
\nthat before  we can  be persuaded to accede to this request,
\nwe must\t be satisfied  that the decision in Com missioner of
\nIncome Tax  v. C.  P. Sarathy  Mudaliar is wrong. But having
\ngiven our  most anxious\t consideration,\t we  find  ourselves
\nunable to  disagree with  the view  taken in  that decision.
\nWhat section  2(6A) (e)\t is designed to strike at is advance
\nor loan\t to a “shareholder” and the t word “shareholder” can
\nmean only  a! registered shareholder. It is difficult to see
\nhow a  beneficial owner of shares whose name does not appear
\nin the register of shareholders of the company can be said o
\nbe a  “shareholder”. He\t may be beneficially entitled to the
\nshares but  he is  certainly not a “shareholder”. It is only
\nthe  person  whose  name  is  entered  in  the\tregister  of
\nshareholders of\t the company as the holder of the shares who
\ncan be said to be a shareholder qua the company, and not the
\nperson beneficially entitled to the shares. It is the former
\nwho is\ta “shareholder”\t within the matrix and scheme of the
\ncompany law  and not  the latter.  We are, therefore, of the
\nview that it is only where a loan is advanced by the company
\nto a registered shareholder and the other conditions set out
\nin section  2(6A) (e)  are satisfied  that the amount of the
\nloan would  be liable  to be  regarded as  ‘deemed dividend’
\nwithin the  meaning of\tsection 2(6A) (e). The amount of the
\nloan would  not fall  within the mischief of this section if
\nit is granted to a beneficial owner of the shares who is not
\nthe registered shareholder. The decision in C.I.T.. v. C. P.
\nSarathy Mudaliar<\/a>  does, in our opinion, lay down the correct
\ninterpretation of section 2(6A) (e).\n<\/p>\n
     Now in  the present  case it was common ground that the
\nloans were  advanced to\t the three  business concerns of the
\nassessee which\twas a  Hindu Undivided Family and this Hindu
\nUndivided Family was not the registered holder of any shares
\nin the\tcompany but  it was  the beneficial owner of certain
\nshares which  stood in\tthe name  OF the  Manager and Karta,
\nShri S.\t M. Saharya.  The loans\t were thus  advanced to\t the
\nbeneficial owner  of the  shares and  not to  the registered
\nshareholder and\t hence they  could not\tbe regarded as loans
\nadvanced to  a\t“shareholder”  of  the\tcompany\t within\t the
\nmeaning\t of   section  2(6A)  (e).  Section  2(6A)  (e)\t was
\naccordingly not attracted and the amounts of the loans could
\nnot be taxed as deemed dividends
\n379<\/span>
\nin the\thands of  the assessee.\t We accordingly\t answer\t the
\nfirst question\tA in  favour of\t the assessee so far as this
\naspect is  concerned. In  view of  this answer\tto the first
\nquestion, it  is not  necessary to  consider the  other\t two
\nquestions decided  by the  High Court on remand. The learned
\ncounsel appearing  on behalf  of the  assesses, in fact, did
\nnot press them.\n<\/p>\n
     There will he lo order as to costs of the appeal.
\nB.B.A..\n<\/p>\n
380<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Rameshwar Lal Sanwarmal vs Commissioner Of Income-Tax, … on 5 December, 1979 Equivalent citations: 1980 AIR 372, 1980 SCR (2) 369 Author: P Bhagwati Bench: Bhagwati, P.N. PETITIONER: RAMESHWAR LAL SANWARMAL Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, ASSAM DATE OF JUDGMENT05\/12\/1979 BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. PATHAK, R.S. CITATION: 1980 AIR […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-202776","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nRameshwar Lal Sanwarmal vs Commissioner Of Income-Tax, ... on 5 December, 1979 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/rameshwar-lal-sanwarmal-vs-commissioner-of-income-tax-on-5-december-1979\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rameshwar Lal Sanwarmal vs Commissioner Of Income-Tax, ... on 5 December, 1979 - 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