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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