Judgement

SHAH, J. : Kishanchand Bajaj and his seven sons formed a Hindu undivided family which owned shares exceeding Rs. 91,000 in value, in public limited companies. The family commenced business in money-lending and as commission agents on May 16, 1956 in the name of Messrs. Mangoomal Kishanchand and in the books of account of the firm the shares which stood registered in the name of Kishanchand with the companies were credited as capital of the business. On August 22, 1956 Shyam Sundar and Girdharlal, two of the sons of Kishanchand, separated from the family, each receiving rupees two lakhs in lieu of his share. On August 23, 1956 a partnership was formed between Kishanchand representing the Hindu undivided family of himself and his five sons and Shyam Sundar and Girdhalal, for carrying on the business of Messrs. Mangoomal Kishanchand. Under the deed of partnership Shyam Sundar and Girdharlal were each entitled to a seventh shares and the remaining five-sevenths share was to belong to Kishanchand as karta of the Hindu undivided family. Dividends received in respect of the shares were credited to the profit and loss account of the firm.

2. In proceedings for assessment of the firm for the year 1959-60 it was claimed that the shares which stood registered in the name of Kishanchand belonged not to the Hindu undivided family but to the firm of Messrs. Mangoomal Kishanchand. The Income-tax Officer rejected that contention. He held that the Hindu undivided family 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 Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. In second appeal to the Income-tax Appellate Tribunal, it was contended on behalf of the Hindu undivided family that the dividend from the shares could be assessed only in the hands of the person who held ownership "legal as well as equitable" in the shares, and as the family had ceased to be the "equitable owner" of the shares, the Hindu undivided family could not be assessed under the Income-tax Act, 1922 on the dividend. The Tribunal rejected the contention. The Tribunal then referred under S. 66 (1) of the Income-tax Act, 1922, the following question to the High Court of Mysore for opinion:

"Whether on the facts and circumstances of the case, the dividend income from shares standing in the name of Kishanchand Lunidasing Bajaj and acquired with the funds of the Hindu undivided family of which the said person was the karta was assessable in the hands of the assessee family ?"

The High Court answered the question in the affirmative, and with special leave the Hindu undivided family has appealed to this Court.

3. In this appeal it was urged that where one taxable entity is the registered holder of shares in a company and the real owner of the shares is another taxable entity, the registered shareholder alone is liable to be assessed to tax in respect of the dividend from those shares, and, therefore, Kishanchand alone was liable to be taxed in respect of the dividend income from the shares, and not the Hindu undivided family. Reliance in support of this contention was placed upon S. 16 (2) of the Indian Income-tax Act, 1922, and certain observations made by this Court in the judgment in Howrah Trading Co. Ltd., v. Commr. of Income-tax, Central Calcutta, (1959) 38 ITR 215

4. In our judgment the contention is wholly without substance. Under S. 3, total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually is charged to tax. By S. 4 the total income of any previous year of any person includes, subject to the previous of the Act, all income, profits and gains from whatever source derived, which are received or deemed to be received in the taxable territories in such year by or on behalf of such person,