Law:

Section:

Section 4 read with sections 66 and 199 of the Income-tax Act, 1961 [Corresponding to section 3, read with sections 16 and 18(5) of the Indian Income-tax Act, 1922] Hindu Undivided Family - Assessable as - Income - Chargeable as - Assessment year 1959-60 - HUF owned shares in a company - Two member separated and took consideration in lieu of their shares - Subsequently, there two members and HUF entered into partnership and dividend received in respect of shares was credited to profit and loss account of firm and claimed it to be income of firm - Whether since shares were standing in name of karta of HUF and acquired with funds of his HUF, dividend income therefrom was assessable in hands of HUF - Held, yes FACTS 'K' and his seven sons formed a HUF which owned certain shares of a public limited company. Two sons, 'S' and 'G', separated from the family and each received certain amounts in lieu of his share. Later on, a partnership was formed between "K" representing the HUF consisting of 'K' himself and his five sons and "S" and "G" for carrying on the business of the family. Dividends received in respect of the shares were credited to the profit and loss account of the firm. In proceedings for assessment of the firm, it was claimed that the shares which stood registered in the name of "K" belonged not to the HUF but to the firm. The ITO rejected that contention. He held that the HUF was "the real and legal owner of the shares", and that the shares were at no time the property of the firm. The order of the ITO was confirmed in appeal by the AAC and the Tribunal. On reference, the High Court too answered the question in favour of the revenue. On appeal to the Supreme Court : HELD Tax being charged by section 3 of the 1922 Act upon dividend income and not being excluded under section 4(3) of the 1922 Act, such income would be chargeable to income-tax under the Act in the hands of the person to whom it accrues or by whom it is received. A company for its purposes does not recognize any trust or equitable ownership in shares; it merely recognizes the registered shareholder as the owner and pays the dividend to that shareholder. But the shares may, because of a trust…

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