TMI Blog1957 (1) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... i. Mafatlal, Apte and Kantilal Ltd., which I will hereafter refer to as the company , were the managing agents of Phaltan Sugar Works Ltd., which was also a company registered under the Phaltan State Companies Act, having a factory at Phaltan. In the former Phaltan State the Indian Income-tax Act, 1922, was adopted almost verbatim by the Phaltan State Income-tax Act (III of 1941) as amended by the Phaltan State Income-tax Act (VIII of 1942). Navinchandra Mafatlal, whom I will hereafter refer to as the assessee , was, as regards the Phaltan State Income-tax Act, a non-resident. The company held its general meeting on 11th March, 1946, and before the general meeting the accounts for the year ending September 30, 1945, were placed for adoption. The accounts showed a profit of ₹ 1,09,165 for the year, but no dividend was declared by the company. On the profit, the company paid ₹ 34,114 as income-tax and ₹ 6,823 as super-tax and the net profit remaining with the company was ₹ 68,228. After the merger of the Phaltan State, by section 7 of the Taxation Laws (Extension to Merged States and Amendment) Act (LXVII of 1949) the Phaltan State Income-tax Act (III of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as the share of the assessee in the dividend of the company, was presumably arrived at by the Income-tax Officer as 5/16th of the dividend on forty shares held by Mafatlal Gagalbhai Sons out of a total of 100 shares of the company in respect of which the net income of ₹ 68,228 was deemed to have been distributed as dividend under section 23A of the Indian Income-tax Act. On April 13, 1954, the Income-tax Officer, North Satara, served a notice upon the assessee intimating that the dividends deemed to have been distributed under section 23A in respect of the shares of the company held by the assessee had been taken at Rs. 8,528 net for the assessment year 1947-48 under the Phaltan State Income-tax Act without being grossed up, though the credit for the tax deemed to have been paid thereon had been given, and as that was a mistake apparent from the record the Income-tax Officer intended to rectify the same under section 35 of the Income-tax Act, and called upon the assessee to submit his objection to the proposed rectification. By letter, dated 19th April, 1954, it was contended by the assessee that the order, dated 26th October, 1951, assessing the assessee under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petition, in so far as it challenges the validity of the assessment order passed by the Income-tax Officer on 26th October, 1951, has been disposed of, and in this petition we are only concerned to decide whether a writ of certiorari may be issued quashing the order, dated 12th October, 1955. There is no substance in the contention that because the Phaltan State Income-tax Act has been repealed an order under section 35 of the Income-tax Act rectifying a mistake in an assessment order passed by the Income-tax Officer cannot be passed. Even though the Phaltan State Income-tax Act has been repealed by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, for purposes of levy, assessment and collection of income-tax and super-tax the Phaltan Income-tax Act does survive, and rectification of a mistake in assessment must be regarded as assessment within the meaning of section 7 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. We are also unable to agree with the contention of Mr. Palkhivala that section 35 of the Indian Income-tax Act contemplates rectification of mistakes which are clerical or arithmetical only. Section 35 of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid the dividend and that could not lawfully be done. It was also submitted that in taking into account the income of the assessee as a partner holding a five annas share in the firm of Mafatlal Gagalbhai Sons, the Income-tax Officer had committed an error. It was urged that, if at all, the dividend income of the assessee could be regarded as that of a holder of ten shares in the company and the dividend income could not exceed 1/10th of the net income of the company which was deemed to have been distributed under section 23A of the Income-tax Act. Finally it was contended that even assuming that there was an error committed in the assessment order in not grossing up the dividend income by adding thereto the tax paid by the company, the assessee having been treated merely as a nominee of the real holder of the shares, the error committed by the Income-tax Officer in making the order of assessment was in giving credit for the tax paid by the company and not in regarding a fraction of the net income of the company as the income of the assessee, and inasmuch as the notice under section 35 of the Income-tax Act did not relate to this error, the order, dated 12th October, 1955, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend. Under section 18, sub-section (5), an assessee is entitled to be given credit for the income-tax or super-tax on the dividend income paid on his behalf, and that is made further clear by section 49B which provides that where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to a shareholder of a company assessed to income-tax, the shareholder shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax..........at the rate applicable to the total income of the company. It was, therefore, open to the Income-tax Officer to have assessed the dividend on the ten shares held by the assessee after grossing up the tax attributable to the shares, and the assessee was in that event entitled to claim credit for the tax paid by the company on the dividend received by him. But the Income-tax Officer did not assess the assessee as a shareholder; he accepted the contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) and 18(5) because the certificates under section 20 of the Act were not produced. It appears that even though the shares were purchased by the assessee company, the shares were not transferred in the books of the company in the name of the assessee, and the shares continued to stand in the name of the transferor. This Court held that the assessee had not received any dividend from the company but had only received an amount representing the dividend from the registered holder of the shares. It was observed by the learned Chief Justice in delivering the principal judgment that as the assessee had purchased the shares but had not taken steps to get the same transferred in the books of the company: the shareholder from whom the shares were purchased received the dividend from the company and qua the assessee the shareholder became a bare trustee with regard to the dividend received by him and the shareholder would be liable to pay to the assessee an amount representing the dividend. It is clear from this decision that the dividend received by a nominal holder of shares and paid to the real owner cannot be regarded as dividend income of the latter within the meaning of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy, we will not be justified in refusing to quash the order merely on the plea that the Income-tax Officer was not asked to stay his hands on the ground mentioned before us. It may also be stated that the application before this Court is somewhat argumentative, and even though at more places than one it is urged that the order, dated October 12, 1955, is without jurisdiction, the argument that it is without jurisdiction, in that the error mentioned in the notice under section 35 is not an error at all, has not been clearly pleaded. This infirmity in the petition, however, does not affect the jurisdiction of this Court to grant relief, especially when the plea of want of jurisdiction but not the true ground in support thereof has been raised. We have invited counsel for the Commissioner to make his submission on this plea, and it has not been submitted before us that he was taken by surprise or that any material, which has a bearing on that contention, has not been placed before us. Mr. Joshi also contended than Shree Shakti Mills' case [1948] 16 I.T.R. 187 has not been correctly decided. He urged that the income received as dividend by a trustee or a nominal holder of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
