Income Tax Appellate Tribunal - Kolkata
S.M. Gupta, Huf, Kolkata vs Assessee
आयकर अपीलीय अधीकरण, Ûयायपीठ - " िस ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : KOLKATA
(सम¢)Before ौी जी.
जी. डȣ.
डȣ. अमवाल,
अमवाल, उपाÚय¢ एवं/and ौी डȣ.डȣ. के. ×यागी,
×यागी, Ûयायीक सदःय
[Before Hon'ble Shri G. D. Agrawal, VP & Hon'ble Sri D. K. Tyagi, JM]
आयकर अपील संÉया / I.T.A No. 1657/Kol/2010
िनधॉरण वषॅ/Assessment Year : 2007-08
S. M. Gupta, HUF -Vs- Assistant Commissioner of Income-tax,
(PA No. AANHS 0991 M) Circle-56, Kolkata.
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
For the Appellant: Sri D. S. Damle
For the Respondent : Sri A. K. Behera
आदे श/ORDER
ौी डȣ.
Per D. K. Tyagi, JM (ौी डȣ. के. ×यागी,
×यागी, Ûयायीक सदःय) The appeal preferred by the assessee is directed against the order of the Ld. CIT(A), Kolkata dated 06.08.2010 for the assessment year 2007-08 on the sole ground of confirming the addition of Rs.4,59,24,179/- as deemed dividend u/s. 2(22)(e) of the I. T. Act.
2. Briefly stated facts of the case are that during the assessment proceedings the Assessing Officer found that two of the members of the assessee HUF were having more than 10% of the share holding in each of the companies i.e. (i) M/s. Rockway Equities Private Limited, (ii) M/s. Aakriti Marketing Private Limited & (iii) M/s. Vinayaka Gilts & Securities Private Limited. He further noted that each of the members of the assessee HUF was beneficially entitled to 25% of the income of the HUF. He further noted that the assessee HUF received during the year, loans from the abovementioned three companies out of the accumulated profit aggregating to Rs.4,59,24,179/-. After examining the records, the Assessing Officer came to 2 the conclusion that the above loans received by the assessee were required to be treated as deemed dividend within the meaning of section 2(22)(e) of the I. T. Act. Accordingly, the Assessing Officer made the addition of this amount to the returned income of the assessee. The relevant portion of the assessment order is reproduced as under :
3 4 5Against this order the assessee filed an appeal before the Ld. CIT(A) and before him following submissions were made :
"The facts giving rise to the dispute in appeal as follows :
The appellant herein is a Hindu Undivided Family of which Sri S. M. Gupta is Karta. The family tree of HUF is as follows :
Sedhmal Gupta/Pushpa Gupta
(Karta) ! (Wife)
!
! ! ! !
Sushil Gupta Sunil Gupta Sheetal Gupta Sarita Gupta
(Son) (Son) (Daughter) (Daughter)
__ ! ! ! !____
Suman Gupta Deepali Gupta Yoghesh Gupta Vijay Agarwal
(Wife) (Wife) (Husband) (Husband)
! !____________
! ! ! !
Sarang Gupta Shreya Gupta Aakshi Gupta Anushka Gupta
(Son) (Daughter) (Daughter) (Daughter)
6
7
8
Ld. CIT(A) after taking into consideration the submissions of the assessee confirmed the action of the Assessing Officer by observing as under :9
" I have carefully considered the above. As already discussed, the Hindu Succession Act, after Amendment in 2005, no doubt provides for equal rights to daughters of coparceners. As already stated in foregoing paras that the daughters of Shri Sushil Gupta re definitely entitled to interest in property income of Shri Sushil Gupta's share in M/s. Sedhmal Gupta, HUF. Similarly, is the case with Shri Sushil Gupta and his family members. The only issue here is whether or not the members of M/s. Sedhmal Gupta HUF, as per the appellant's own record filed in its return of income are 4 or 12. Since, as per the records, the members are only 04 and therefore each member is having 25% of interest in the HUF income.
Considering all, I am of the view that the conditions laid down in section 2(22)(e) of the I. T. Act and Explanation 3 thereto are fulfilled for treating the loans received from the
03 companies as deemed dividend. Accordingly, the decision of the Assessing Officer treating the loan of Rs.4,59,24,179/- as deemed dividend in hands of the appellant is upheld."
Further aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before us.
3. At the time of hearing before us the Ld. Counsel for the assessee reiterated the same submissions as made before the Ld. CIT(A) and further placed reliance on the judgments of the Hon'ble Karnataka High Court in the case of Sugalabai Vs. G. Maradi and Others (2007) 6 AIR Kar R 504 and of Hon'ble Orissa High Court in the case of P C Patnaik Vs. Sarat Chandra Patnaik (AIR 208 Orissa 133) in respect of amended provisions of section 6 of the Hindu Succession Act which came into force from 9.9.2005 and summarized his contention as under :
"i) 2 daughters of S. M. Gupta be held to be coparceners of S. M. Gupta HUF; throughout the period commencing from 01.04.2006 to 31.03.2007 because as per Sec. 6 they were coparceners of HUF on account of their birth.
ii) The daughters of Sushil and Sunil Gupta also became coparceners of S. M. Gupta HUF because they were daughters the coparceners of S. M. Gupta, HUF.
iii) The wives and children of Sushil and Sunil Gupta were also members of S. M. Gupta HUF and each was having beneficial rights & interest in the income of S. M. Gupta, HUF.
Since 12 individuals were members/coparceners of S. M. Gupta and each was having beneficial rights and interest in the income of S. M. Gupta HUF none of them could hold and have share in the HUF income exceeding 20% as required by Expl. 3(b) of S. 2(22)(e). The assessee therefore, submits that the conditions of Explanation 3(b) to Sec. 2(22) of the I. T. Act were not fulfilled in the instant case and therefore, Sec. 2(22)(e) had no application."
10For making this submission, he also placed reliance on the commentary on Hindu Law by Mulla considered to be an authority on interpretation of Hindu Law and also on the commentary of the Income-tax law by Ld. Author Sampat Iyengar.
4. Ld. D. R., on the other hand, relied on the orders of the lower authorities and also pointed out that the plea that assessee HUF had 12 members of the HUF and not 4 was taken by the assessee for the first time before the Ld. CIT(A). Concluding his argument, he submitted that the orders of the lower authorities may kindly be confirmed.
5. After hearing the rival parties, perusing the material available on record and the case laws relied on by both the parties, we find that as per the provisions of section 2(22)(e) of the I. T. Act and Explanation 3(b) thereto, the advance made by a company out of its accumulated profits to the following members are deemed to be dividend in their hands :
(i) To a shareholder holding not less than 10% of the voting power,
ii) To any concern in which such shareholder is a member or a partner in which she has substantial interest.
Further, the following conditions are to be fulfilled for treating the said advance from the company as deemed dividend u/s. 2(22)(e) of the Act :
(i) Company is not one in which public is not substantially interested,
(ii) Company should have accumulated profits,
(iii) Advances were made out of such accumulated profits of the company,
(iv) And the recipients shareholder should hold at least 10% of the Equity Share or,
(v) Payment of loan to any concern (HUF) in which such shareholder is a member in which he has a substantial interest (not less than 20%).
In the instant case, the assessee HUF is holding one share in each of the abovementioned three companies i.e. (i) M/s. Rockway Equities Private Limited, (ii) M/s. Aakriti Marketing Private Limited & (iii) M/s. Vinayaka Gilts & Securities Private Limited. Further, the assessee HUF is not a registered shareholder in the abovementioned three companies even though the loans were given to the assessee HUF out of accumulated profits, these loans do not fall under the category i.e. loan to a shareholder holding not less than 10% of the voting power, for treating the loan as treated as deemed dividend. However, according to the Assessing Officer, it falls under the next category i.e. the HUF receiving loan where its members are share holders owning not less than 10% of the equity share. According to him two members of the assessee HUF are holding more than 10% of the shareholding in each of 11 the abovementioned three companies i.e. (i) M/s. Rockway Equities Private Limited, (ii) M/s. Aakriti Marketing Private Limited & (iii) M/s. Vinayaka Gilts & Securities Private Limited. The Assessing Officer also held that the members of the HUF are beneficially entitled to 25% of its income. Thus, the conditions laid down in section 2(22)(e) of the I. T. Act read with Explanation 3 thereto were simultaneously fulfilled for treating the advances received by the assessee HUF from the abovementioned three companies as deemed dividend u/s. 2(22)(e) of the I. T. Act. Since all the conditions were fulfilled, the Assessing Officer has treated the above advances of Rs.4,59,24,179/- as deemed dividend. Before the Ld. CIT(A), as has been rightly pointed out by the Ld. CIT (DR) the assesee contended that the members of the assessee HUF were 12 and not 4 as noted by the Assessing Officer in the assessment order. Following chart of the members of the assessee HUF was also furnished before the Ld. CIT(A) :
Sedhmal Gupta/Pushpa Gupta (Karta) ! (Wife) ! ! ! ! ! Sushil Gupta Sunil Gupta Sheetal Gupta Sarita Gupta (Son) (Son) (Daughter) (Daughter) __ ! ! ! !____ Suman Gupta Deepali Gupta Yoghesh Gupta Vijay Agarwal (Wife) (Wife) (Husband) (Husband) ! !____________ ! ! ! ! Sarang Gupta Shreya Gupta Aakshi Gupta Anushka Gupta (Son) (Daughter) (Daughter) (Daughter) Placing reliance on this chart, the assessee's contention was that the assessee HUF comprised of Shri Sedhmal Gupta, Smt. Pushpa Gupta (his wife), Shri Sushil Gupta (son of Shri Sedhmal Gupta) and his family members (his wife and two children), Shri Sunil Gupta (son of Shri Sedhmal Gupta) and his family (his wife two children), Smt. Sheetal Gupta (daughter of Sri Sedhmal Gupta) and her husband and Smt. Sarita Gupta (daughter of Shri Sedhmal Gupta) and hr husband, totaling to 12 members. While the Assessing Officer has gone by the assessment record, according to which the members of S. M. Gupta HUF were (i) Shri Sedhmal Gupta, (ii) Smt. Pushpa Gupta (wife of Shri Sedhmal Gupta, (iii) Shri Sushil Gupta and (iv) Shri Sunil Gupta (both sons of Shri Sedhmal Gupta). However, the Ld. CIT(A) rejected this submission of the assessee by observing as under :12
"I have carefully considered the contention of the A/R that every members of the family members, including female members, are entitled to share in the HUF Property/ income. In this regard, he has also referred to the Hindu Succession Act 1956 as amended by the Amendment Act 39 of 2005 which provides equal rights to daughters in the Hindu Mitakshare coparcenary property. The Hindu Succession Act, after the amendment of 2005, no doubt provides for equal rights to daughters in the HUF property but it does not alter composition of HUF as specifically provided by the appellant itself. I am also of the view that spouse and children of Shri Sushil Gupta are entitled to interest in the share (of HUF property) of Shri Sushil Gupta. Similarly, spouse and children of Shri Sunil Gupta are entitled to their interest in the share (of HUF property/income) of Shn Sunil Gupta. However, they are not entitled to share in the HUF property/income as such. Therefore they do not automatically become members of M/s. Sedhmal Gupta HUF. Considering the above, I am of the view that the family members of M/s. S. M. Gupta, HUF are only four but not twelve. Therefore, each member is having substantiate interest i.e. 25% in income of the HUF. Accordingly, the conditions laid down in Section 2(22)(e) of the l. T. Act read with Explanation-3 thereto were clearly fulfilled for treating the advances received by the appellant HUF from the three companies as deemed dividend."
In our considered opinion, this action of the Ld. CIT(A) is not proper as we find that till the enactment of Hindu Succession (Amendment) Act, 2005 married daughters did not have a or hold rights in the properties belonging to HUF governed by Mitakshara Law. Even the unmarried daughters belonging to HUF were not entitled to share in the HUF income and properties although they had legal right of maintenance which would be enforced against the property and income of the HUF. Similarly wives of the coparceners have right of maintenance and provision which can be enforced against the property and income of the HUF to which their husband belongs. These provisions of Hindu Succession Act were found to be discriminatory against the female members and, therefore, on the principle of gender equality the Law Commission recommended that the gender discrimination should be removed. Accordingly, Hindu Succession (Amendment) Act, 2005 was passed by the Parliament which came in force on all India basis effective from 9.9.2005. Explanatory note to the Amendment Act, 2005 explained that the retention of the Mitakashara Coparcenary property without including the females in it means that the females cannot inherit an ancestral property as their male counter part do. The law, by excluding the daughter from participating in coparcenary ownership not only contributed to her discrimination on the ground of gender but has also led to oppression and negation of her fundamental right of equality granted by the Constitution. With this purpose and object section 6 of the Hindu Succession Act was amended which provided as under :
13"Section 6 (1) on and from the commencement of Hindu Succession (Amendment) Act 2005, in a joint Hindu family governed by Mitakshara Law, the daughter of a coparcener shall ----
a) by birth become a coparcener in her own right in the same manner as the son;
b) have the same rights in the coparcenary property as she would have had if she had been a son,
c) be subject to the same liabilities in respect of the said coparcenary property as that of a son.
and any reference to a Hindu Mitakshara coparcener shall be deemed to include a reference to a daughter of a coparcener. Sub section (5) contained the only exception which provide that the amended provisions of Sec. 6 will not apply only in those cases where partition of the HUF had been effectd prior to 20.12.2005."
The provision of section 6 of Hindu Succession Act, which came in force from 5.9.2005 brought "daughter" of "a coparcener" on par with son of a coparcener. The Amendment Act in no ascertain words held that the daughter of a coparcener of Mitakshara Hindu Family shall by birth become coparcener; in her own right of the joint Hindu family governed by Hindu Mitakshara Law. The words used in the Amendment Act are clear and unambiguous. The expression/word "daughter" is not qualified and is not prefixed by any other expression such as "married", "unmarried", "widowed", "divorced" etc. In other words the moment the Amendment Act of 2005 came in force on 9.9.2005 daughter wherever whenever born to a coparcener of a Mitakshara joint Hindu family became coparcener of such undivided family in her own right as if she was a son. For becoming "coparcener" of the Mitakshara joint Hindu family it was wholly immaterial as to whether on the date on which the Amendment Act came in force the daughter was married or unmarried. It was not even necessary but the daughters were born to a coparcener after 9.9.2005. This view of ours finds support from the judgment of the Hon'ble Karnataka High Court in the case of Sugalabai Vs. G. A Maradi & Ors (2007) 6 AIR 504. In this judgment, the Court held as under :
"As soon as the amending act of 2005 was brought into force, the daughter of a coparcener becomes, by birth, a coparcener in her own right in the same manner as the son. Since the change in law has already come into force during the pendency of these appeals, it is the changed law that will have to be made applicable to the case in hand. A daughter by birth become a coparcener and there is nothing in the Central Amendment Act 2005 to indicate that the said Amendment Act will be applicable only in respect of daughter born on or after the commencement of the Amending Act of 2005. Effect of the use of the expression "on" and "from" and the expression "by birth becomes a coparcener in her own right" therefore have the effect of Amendment Law being made applicable to the pending appeals as well."14
The Hon'ble Orissa High Court in the case of P. C. Patnaik Vs. Sarat Chandra Patnaik 208 AIR 133 has held as under :
""Submission that the daughter who are born only after 2005, will be treated as coparceners, is not accepted. If the provision of the Act is read with the intention of legislation, the irresistible conclusion is that Sec 6 ( as amended by Act 39 of 2005) rather gives a right to the daughter as coparcener from the year 2005 whenever they may have born. They can claim for partition in property which has not been partitioned earlier. But if the partition was effected prior to 20.12.2004, the same should not be reopened. The daughters are entitled to a share each equal with the sons as a coparcener. The Amendment Act 2005 was enacted to remove the discrimination contained n Sec 6 of the Hindu Succession Act 1956 by giving equal rights and liabilities to the daughters in the Hindu Mitakshara Coparcenary as sons have. The said Act came into force with effect from 09.09.2005 and the statutory provisions created new rights. The provisions are not expressly made retrospective by legislature thus the Act itself is very clear and there is no ambiguity. Looking into substance of the provision and on co-joint of sub sec. (1) to (5) of Sec. 6 of the Act are clear and one can come to conclusion that the Act is a prospective. It creates a substantial right in favour of the daughter. The daughter got a right of coparcener from the date when the Amendment Act came into force i.e. 9.9.2005."
In view of the above, w.e.f 9.9.2005 when the Amendment Act, 2005 came into force, the two daughters of Sri Sedhmal Gupta, two daughters of Sri Sunil Gupta and one daughter of Shri Sushil Gupta became co-parcener of S. M. Gupta HUF on account of their birth to the respective co-parceners in their own right and, therefore, each one of them had share in the income of S. M. Gupta HUF which was earned during the year under appeal besides the son of Mr. Sushil Gupta. Thus, we find that ten individuals were members/co-parceners of S. M. Gupta HUF and each was having beneficial rights and interest in the S M Gupta HUF. Thus, none of them could hold and have share in the HUF income exceeding 20% as required by Explanation 3(b) of section 2(22)(e) of the Act and hence, the condition of Explanation 3(b) of Section 2(20(e) of the Act was not fulfilled in this case and, therefore, section 2(22)(e) has no application. Therefore, the addition made by the Assessing Officer and sustained by the Ld. CIT(A) by treating the amount of Rs. 4,59,24,179/- as deemed dividend u/s. 2(22)(e) of the Act is hereby deleted.
156. The assessee has also challenged the order of the Ld. CIT(A) on the ground that the Ld. CIT(A) was grossly unjustified in upholding the addition u/s. 2(22)(e) even though the assessee HUF was not registered shareholder in any of the loan granting companies and, therefore, section 2(22)(e) had no application. As this ground does not arise out of the order of the Ld. CIT(A) and also we find that no such ground was taken before him, the ground of appeal preferred by the assessee is, therefore, dismissed.
7. In the result, the appeal of the assessee stands partly allowed.
8. The order is announced in the open court on 24.12.10 Sd/- Sd/-
जी. डȣ. अमवाल, उपाÚय¢ डȣ. के. ×यागी, Ûयायीक सदःय
(G. D. Agrawal) (D. K. Tyagi)
Vice President Judicial Member
तारȣख)
तारȣख) Dated : 24th December, 2010
(तारȣख Pronounced by
Sd/-(BKH) Sd/-(DKT)
AM JM
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - S. M. Gupta, HUF, C/o P. K. Saraf, 238B, AJC Bose Road, Kolkata-20.
2 ू×यथȸ/ Respondent, ACIT, Circle-56, Kolkata.
3. आयकर किमशनर/The CIT, Kolkata
4. आयकर किमशनर (अपील)/The CIT(A), Kolkata.
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, उप पंजीकार/Deputy Registrar.