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1965 Supreme(Gau) 26
GAUHATI HIGH COURT
G.Mehrotra, C.S.Nayudu, JJ.
Rameshwarlal Sanwarmal -Appellant
Versus
Commissioner of Income-tax -Respondent
Income-tax Reference No. 2 of 1964
Decided On : 10-05-1965
M.C.Pathak, K.P.Bhattacharjee, A.N.Natto, S.S.Ray
The word "shareholder" in Section 2(6A)(e) of the Indian Income-tax Act, 1922, means a shareholder whose name is entered in the books of the company.
Headnote:
INCOME TAX - Assessment - Limitation - Fresh assessment - Cancellation of ex parte assessment - Whether fresh assessment made under Section 27 of the Act - Whether barred by limitation - Interpretation of Section 34(3) proviso - Whether assessee is entitled to benefit of Section 18(5) - Meaning of 'shareholder' in Section 2(6A)(e) - Whether advances made to undivided Hindu family can be regarded as dividend income in the hands of the family - Interpretation of Section 2(6A)(e).
Fact of the Case:
The assessee, a Hindu undivided family, was assessed to income-tax for the year 1955-56 on February 6, 1961, pursuant to an order under Section 27 cancelling the assessment of Sri S. M. Saharia, as an individual. The assessee contended that the assessment was barred by limitation under the second proviso to Section 34(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"). The assessee also contended that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were not taxable as dividends in the hands of the assessee for the assessment years 1955-56 and 1956-57, respectively, as the shares were registered in the name of Sri S. M. Saharia, the karta of the family.
Finding of the Court:
The Court held that the fresh assessment made on February 6, 1961, was barred by limitation under the second proviso to Section 34(3) of the Act. The Court further held that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were not taxable as dividends in the hands of the assessee for the assessment years 1955-56 and 1956-57, respectively, as the shares were registered in the name of Sri S. M. Saharia, the karta of the family.
Issues: 1. Whether, on the facts and in the circumstances of the case, and upon a true interpretation of the provisions of the second proviso to Section 34(3), the assessment for the year 1955-56 on the applicant Hindu undivided family made on February 6, 1961, pursuant to an order under Section 27 cancelling the assessment of Sri S. M. Saharia, as an individual, was barred by limitation? 2. Whether, on the facts and in the circumstances of the case, and on a true interpretation of the terms of Section 2(6A)(e) of the Income-tax Act, 1922, the Tribunal was right in holding that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as dividends in the hands of the applicant Hindu undivided family for the assessment years 1955-56 and 1956-57, respectively, when the shares were registered in the name of Sri S. M. Saharia, the karta of the family?
Ratio Decidendi: 1. The Court held that the fresh assessment made on February 6, 1961, was barred by limitation under the second proviso to Section 34(3) of the Act. The Court reasoned that the ex parte assessment was made under Section 23(4) without issuing a notice under Section 23(2), and was therefore void ab initio and illegal. A fresh assessment was directed to be made after issuing notice under Section 23(2) of the Act. The fresh assessment made on February 6, 1961, was made after issuing a notice under Section 23(2) for the assessment year 1955-56 and the Hindu undivided family of which Sri Sanwarmal Saharia was the karta was assessed to income-tax. However, the Court held that the fresh assessment was not made under Section 27 of the Act, and therefore, the second proviso to Section 34(3) was not attracted. 2. The Court held that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were not taxable as dividends in the hands of the assessee for the assessment years 1955-56 and 1956-57, respectively, as the shares were registered in the name of Sri S. M. Saharia, the karta of the family. The Court reasoned that Section 2(6A)(e) of the Act provides that "dividend" includes any payment by a company, not being a company in which the public are substantially interested within the meaning of Section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits. The Court held that the word "shareholder" in Section 2(6A)(e) means a shareholder whose name is entered in the books of the company. An undivided family as such cannot be a shareholder in the company and it is not disputed that in the present case the name of Sanwarmal Saharia was entered in the registers of the company as a shareholder. The Court further held that the advance made to the 3 business concerns was made to the undivided family of which Sri Sanwarmal Saharia was the karta and not to him as an individual as these business concerns were owned by the undivided family. That being so, the Court held that the advance in the present case made to the undivided family business cannot be regarded as a dividend and cannot be taxed in the hands of the undivided family, the beneficial owner of the shares, as a dividend income.
Final Decision: The Court answered question No. 1 in the affirmative and question No. 2 in the negative. The Court held that the assessee was entitled to his costs, which were assessed at Rs. 250.
1. The following questions of law have been referred to us under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter called " the Act "), for opinion:
" (1) Whether, on the facts and in the circumstances of the case, and upon a true interpretation of the provisions of the second proviso to Section 34(3), the assessment for the year 1955-56 on the applicant Hindu undivided family made on February 6, 1961, pursuant to an order under Section 27 cancelling the assessment of Sri S. M. Saharia, as an individual, was barred by limitation?
(2) Whether, on the facts and in the circumstances of the case, and on a true interpretation of the terms of Section 2(6A)(e) of the Income-tax Act, 1922, the Tribunal was right in holding that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as dividends in the hands of the applicant Hindu undivided family for the assessment years 1955-56 and 1956-57, respectively, when the shares were registered in the name of Sri S. M. Saharia, the karta of the family?
(3) Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to justify the conclusion that Sri S. M. Saharia was holding shares in Messrs. Shyam Sundar Tea Co. (Private) Ltd. in his capacity as karta of the applicant family consisting of himself and his minor son?
(4) Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal for the finding that the applicant family was the beneficiary uptill August 16, 1955, in respect of 50 shares registered in the name of Sri S. M. Saharia on May 16, 1953, before the disruption in the joint status of the family of Hanutram Ramprotap?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Hindu undivided family of Hanutram Ramprotap was not a shareholder in Messrs. Shyam Sundar Tea Company (P.) Ltd. uptill August 16, 1955?
(6) Whether, on the facts and in the circumstances of the case, in computing the accumulated profits of Messrs. Shyam Sundar Tea Company (P.) Ltd. within the meaning of Section 2(6A)(e), the Tribunal acted rightly in refusing to allow:
(a) deduction in respect of loans advanced by the said company to the erstwhile family of Messrs. Hanutram Ramprotap which amounted to Rs. 3,60,989 as at December 31, 1954, and increased to Rs. 3,80,567 as at August 16, 1955, and written off at the end of the year 1955;
(b) deduction in respect of Rs. 51,049 and Rs. 66,206 for the assessment years 1955-56 and 1956-57, respectively, being the difference between the written down value of depreciable assets of the said company as per income-tax records and their book value?"
2. The material facts disclosed in the statement of the case are that the assessee, Messrs. Rameshwarlal Sanwarmal, is a Hindu undivided family represented by its karta, Sri Sanwarmal Saharia. The reference relates to two assessments for the years 1955-56 and 1956-57. Point No. 1 arises only in connection with the assessment for the year 1955-56. The corresponding accounting year for 1955-56 is the Ramnavami year 2011 (ending on March 31, 1955) and the corresponding accounting year 1956-57 is the Ramnavami year 2012 (ending on April 18, 1956). The necessary facts for answering the question No. 1 are that on the 27th December, 1955, the Income-tax Officer, Special Survey Circle, Shillong, issued a notice under Section 22(2) of the Act to Sri Sanwarmal Saharia. By this notice the addressee was called upon to furnish a statement of his income during the previous year. Sri Sanwarmal Saharia filed no return in response to the aforesaid notice. A further notice under Section 22(4) of the Act for production of books was also not responded to and the Income-tax Officer made an ex parte assessment under Section 23(4) on 29th February, 1960. This assessment was made in the status of an "individual". The assessee was described in the assessment order as " Sri Sanwarmal Saha
