Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX, ASSAM, TRIPURA,MANIPUR & NAGALAN
Vs.
RESPONDENT:
M/S. RAMESHWARI LAL SANWARMAL
DATE OF JUDGMENT22/09/1971
BENCH:
ACT:
Income-tax Act, 1922, ss. 27 and 34(3)-Assessment on S as
individual set aside under s. 27 and fresh assessment made
on S as karta of H.U.F.-Fresh assessment is on a different
assessee and not one under s. 27-Cannot claim protection of
s. 34(3) 2nd proviso.
Income-tax Act, 1922, s. 2(6A)-Shares of company in which
public are not substantially interested-Held in name of
karta in H.U.F.-Loan to karta by company whether liable to
be treated as ’dividend’ under s. 2(6A).
HEADNOTE:
In connection with the assessment year 1955-56 the Income-
tax Officer issued notice under s. 22(2) of the Income-tax
Act, 1922 to S in the status of an individual. He submitted
a return in the status of karta of his H.U.F. The Income-tax
Officer passed an ex-parte assessment order on him as
individual under s. 23(4). The assessment was however set
aside on S’s application under s. 27 of the Act. A fresh
assessment was made on the H.U.F. on February 6, 1961 on the
basis of the return submitted by S in that status. This
assessment was made after the period of four years mentioned
in s. 34(3) of the Act. The question in appellate and
reference proceedings was whether the latter assessment was
one under s. 27 and therefore protected as regards
limitation under s. 34(3) 2nd proviso.
In the previous years relevant to the assessment years 1955-
56 and 1956-57 certain loans were advanced to the aforesaid
H.U.F. by a company. The tribunal found that S held certain
shares in that company. Its further finding was that he
held these shares as the karta of his H.U.F. The company
being one in which the public were not substantially in-
terested the question was whether these loans could be
considered as belonging to S and therefore any loan given by
the company to S could not come within the scope of cl. (3)
to s. 2(6A).
HELD : (i) The return submitted by S in respect of the year
1955-56 was in his capacity as karta of his family. The
status shown in the return was H.U.F. He filed no return in
the status of an individual. The two capacities are totally
different. The ex-parte order was made against S in the
status of an individual. What was set aside under s. 27 was
the assessment made on him in the status of an individual.
There was no assessment against H.U.F. and there was no
question of setting aside any assessment made against H.U.F.
On February 6, 1961 the H.U.F. was assessed for the first
time though the Income-tax Officer wrongly. called /it as a
fresh’ assessment. On the facts established it was not
possible to come to the conclusion that the assessment made
against the H.U.F. was an assessment under s. 27. That
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being so the assessment made against the H.U.F. on February
6, 1961 was clearly barred by time. The High ,Court was
accordingly justified in answering the first question
against the Department. [858 D-G]
855
(ii)Since the High Court had not gone into the question
whether the shares were held by S in his individual capacity
or as karta of H.U.F., this Court had to proceed on the
basis of the finding of the Tribunal that he held those
shares as the karta of his family. This Court held in
Kishanchand Lunidasing Bajaj’s case that when the shares
acquired with the funds of H.U.F. were held in the name of
the karta, the H.U.F. could be assessed to tax under the Act
on the dividend from those shares. In view of that decision
the loan in question must be held to be dividend within the
meaning of cl. (e) of s. 2(6A). [The Court however made it
clear that the loan granted in the account year previous to
the assessment year 1955-56 could not be brought to tax
because assessment in respect of that year was not made
within the time prescribed.] [859 B-H]
Kishanchand Lunidasing Bajaj v. C.I.T., Bangalore, 60 I.T.R,
500, applied.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1956 and
1957 of 1969 and 1426 and 1427 of 1971.
Appeals by certificate/special leave from the judgment and
order dated May 10, 1965 of the Assam and Nagaland High
Court in Income-tax Reference No. 2 of 1964.
S.C. Manchanda and R. N. Sachthey, for the appellant (in all
the appeals).
O. P. Khaitan, for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Hegde, J. Civil Appeals Nos. 1956-57 of 1969 by certificates
have become infructuous as the certificates on the strength
of which those appeals were brought were not properly
issued. To get over that difficulty, the Commissione of
Income-tax applied for and obtained special leave to appeal
against the judgment of the High Court of Assam and
Nagaland. The appeals filed on the basis of the special
leave granted are Civil Appeals Nos. 1426 and 1427 of 1971.
At present we are only concerned with those appeals.
The judgment under appeal is one rendered in a reference
under s. 66(1) of the Indian Income-tax Act, 1922 (.to be
hereinafter called the Act). The Income-tax Appellate
Tribunal after stating the case referred the following six
questions for the opinion of the High Court
"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 s. 3 4 ( 3 ), the assessment for
the year 1955-56 on the applicant Hindu
undivided family made on 6-2-1961, pursuant to
an order under section 27, cancelling the
assessment of Shri S. M. Saharia, as an
individual, was barred by limitation ?
856
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. 3,43,5 05 (net) were
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taxable as dividends in the hands of the
applicant H.U.F. 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 Sunder Tea Co.
(Private) Ltd. in his capacity as Karta of the
applicant family consistingof 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
up till 1678-1955 in respect of 50 shares
registered in the name of Sri S. M. Saharia on
16-5-1953, 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 no,’, a
shareholder in M/s. Shyam Sundar Tea Company
(P) Ltd. up till 16-8-1955 ?
6.Whether on the facts and in the
circumstances of the case, in computing the
accumulated profits of Messrs. Shyam Sunder
Tea Co. (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 31-12-1954 and increased to
Rs. 3,80,567 a$ at 16-8-1955 and written off
at the end of the year 1.955.
(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?
857
The High Court has answered the first two questions in
favour of the assessee and it did not go into the other
questions as it opined that in view of the answers given to
the second questions there was no need to answer the
remaining questions. For the reasons to be presently
stated, we have come to the conclusion that the answer given
by the High Court to the first question is correct and that
given by it to the second question is wrong. As a result of
our finding,, the appeal relating to the assessment year
1955-56 viz. Civil Appeal No. 1426 of 1971 has to be
dismissed. But the appeal relating to the, assessment year
1956-57 should be allowed and the case remitted to the High
Court for answering the questions that remain to be
answered.
Let us first refer to the facts relating to the first
question. As mentioned earlier this question exclusively
relates to the assessment year 1955-56, the relevant
previous year being Ramnaami year 2011 (ending on March 31,
1955). In respect of that assessment, the Income-tax,
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Officer issued a notice under S. 22(2) to Shri Sanwamal
Saharia in the status of an individual on December 27, 1955.
He submitted a return on October 29, 1959 on behalf of his
H.U.F. On February 29, 1960, the Income-tax Officer passed
an ex-parte assessment order on him as individual under s.
23(4) without issuing any notice under s. 23 (2). On March
22, 1960, Saharia filed an application under s. 27 to
cancell the ex-parte assessment. On December 16, 1960, the
Income-tax Officer set aside the order of assessment made on
February 29, 1960. Therein he stated that fresh assessment
will be made in due course. An assessment was made on the
H.U.F. on February 6, 1961 on the basis of the return
submitted on October 29, 1959. Prima facie this assessment
is barred by s. 34(3) which says
"No order of assessment or reassessment, other
than an order-of assessment under section 23
to which clause (c) of sub-section (1) of
section 28 applies or an order of assessment
or reassessment in cases falling within clause
(a) of sub-section (1) or sub-section (1A) of
this section shall be made after the expiry of
four years from the end of the year in which
the income, profits or gains were first
assessable."
It is not the case of the Department that the assessment in
question either falls under clause (c) of sub-section (1) of
section 28 or clause (a) of subsection (1) or sub-section
(1A) of s. 34. Therefore the Department cannot take any
assistance from the main s- 34(3). But in support of its
contention that the assess-
858
ment was made within time, reliance was placed by the
Department on the second proviso to s. 34(3). That proviso
reads
Provided further that nothing contained in
this section limiting the time within which
any action may be taken or any order,
assessment or reassessment may be made shall
apply to reassessment made under section 27 or
to an assessment or reassessment made on the
assessee or any person in consequence of or to
give effect to any finding or direction
contained in an order under section 31,
section 33, section 33A, section 33B, section
66 or section 66A."
What was contended on behalf of the Department is that the
reassessment in this case was made under s. 27. That
contention has been upheld by the Appellate Assistant
Commissioner as well as by the Tribunal. But the High Court
has come to the conclusion that the reassessment was not
made under that section.
To recapitulate the facts which we have earlier mentioned,
the return submitted by Saharia was in his capacity as the
karta of his family. The status shown in the return is
H.U.F. He filed no return in the status of an individual.
The same person can be taxed both as an individual as well
as the karta of his family. The two capacities are totally
different. The liability-to be taxed as an individual is
different from the liability to be taxed on behalf of his
H.U.F. The individual and the H.U.F. are totally different
units of taxation. They are two different assessees. The
ex-parte order was made on February 29, 1960 against Saharia
in the status of an individual. What was set aside under s.
27 was the assessment made on him in the status of an
individual. There was no assessment against H.U.F. Hence
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there was no question offsetting aside any assessment made
against H.U.F. On February 6, 1961, the H.U.F. was assessed
for the first time though the Income-tax officer wrong
called it as a fresh assessment. On the facts established,
it is not possible to come to the conclusion that the
assessment made a against the H.U.F. was an assessment under
s. 27. That being so, the assessment made against the
H.U.F. on February 6, 1961 is clearly barred by time Hence
the High Court was justified in answering the first question
against the Department.
Now coming to the second question, the relevant facts are
these :
In the relevant previous years to the assessment years 1955-
56 and 1956-57. certain loans had been advanced to the
H.U.F. by a company known as M/s. Shyam Sunder Tea Co. (P)
Ltd. The Tribunal has found that Saharia had held certain,
shares in that company. Its further finding is that he held
those shares as the
859
karta of his H.U.F. Therefore the question that arose for
decision was whether those loans can be considered as
"dividends" as provided in clause (e) of s. 2(6A). There
was controversy between the parties whether those shares
were held by Saharia in his individual capacity or as the
karta of the family. That controversy has not been gone
into by the High Court. At present we are proceeding on the
basis that he held those shares as the karta of his family.
Clause (e) of s. 2(6A) says
"dividend" includes......
(e)any payment by a company, not being a
company in which the public are substantially
interested within the meaning of s. 23A, of
any sum (whether as representing a part of the
assets of 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."
It is not disputed that M/s. Shyam Sunder Tea Co. (P) Ltd.
is not a company in which public are substantially
interested. it is a private company. The only question that
was in issue wag that as the shares in question stood in the
name of Saharia. can they in law be considered as the shares
of the H.U.F. ? The High Court held for the purpose of the
Act, they must be considered "as the shares of Saharia and
therefore any loan granted by M/s. Shyam Sunder Tea Co.
Ltd. to the H.U.F. cannot come within the scope of clause
(e) to s. 2 (6A). In arriving at that conclusion, the High
Court differed from the view taken by the Mysore High Court
in Kishanchand Lunidasing Bajaj v. Commissioner of Income-
tax, Mysore(1), wherein that Court held that provisions of
s. 18(5), 23A and 16(2) and other provisions of the Act
relating to shares and dividends do not lead to the
conclusion that for the purposes of assessment to income-tax
dividend income derived by a benami holder of shares should
be treated as his own income and not that die real owner of
the shares which have yielded the dividend income. That
decision was affirmed by this Court in Kishanchand
Lunidasing Bajaj v. Commissioner of Income-tax, Bangalore(2
). Therein this Court held that where the shares acquired
with the funds of H.U.F. were held in the name of the karta,
the H.U.F. could be assessed to tax under the Act on the
dividend from those shares. In view of that decision we
must hold that the High Court erred in its answer to the
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second question. Hence that answer is discharged and in its
place we answer that question in favour of the Department.
But we hasten to make it clear that in respect of the loan
granted in the account year previous to the
(1) 53ITR 605. (2) 60 I.T.R, 500.
860
assessment year 1955-56,the same cannot be brought to tax,as
assessmet in respect of that year was not made within the
time prescribed.
In the result Civil Appeals Nos. 1956-57 of 1959 are dis-
missed as being not maintainable. There will be no order as
to costs in those appeals. So far as Civil Appeal No. 1426
of 1971 (appeal relating to assessment year 1955-56) is
concerned, it is also dismissed but Civil Appeal No. 1427 of
1971 (appeal relating to assessment year 1956-57) is allowed
to the extent mentioned above and the case remitted to the
High Court for answering the questions that were not
answered by it. As both sides have partly succeeded and
partly failed before this Court, there will be no order as
to costs.
G.C. Ordered
accordingly.
861