TMI Blog1965 (5) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 up-till 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 Hanut ram Ramprotap was not a shareholder in Messrs. Shyam Sundar Tea Company (P.) Ltd. up-till 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the ex parte assessment for the assessment year 1955-56. The Income-tax Officer held that as the ex parte assessment was made under section 23(4) without issuing a notice under section 23(2), it was void ab initio and was illegal. A fresh assessment was directed to be made after issuing notice under section 23(2) of the Act. On the 6th February, 1961, the Income-tax Officer made a fresh assessment 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. The assessee was described as Sri Sanwarmal Saharia, karta of Messrs. Saharia Company alias Rameshwarlal Sanwarmal (Hindu undivided family consisting of karta and a minor child) . The total income was estimated at ₹ 2,70,333. The contention raised by the assessee was that the assessment made on the 6th February, 1961, was barred by limitation under the second proviso to sub-section (3) of section 34. It cannot be denied that ordinarily the assessment for the year 1955-56 should have been completed on the 31st March, 1960, and as it was completed on the 6th February, 1961, it was beyond time. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation. As disclosed in the statement of the case, on the 27th December, 1955, notice under section 22(2) was issued to Sri Sanwarmal Saharia individually. The return was filed by him on the 29th October, 1959, as the karta of the Hindu undivided family. On the 29th February, 1960, ex parte assessment under section 23(4) was made on Sri Sanwarmal Saharia in the status of an individual. On the 22nd March, 1960, petition under section 27 of the Act was filed by Sri Sanwarmal Saharia to cancel his ex parte assessment. Obviously this petition was filed by him in his individual capacity. Section 27 of the Act reads as follows: 27. Where an assessee within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income-tax Officer that he was prevented by sufficient cause from making the return required by section 22, or that he did not receive the notice issued under sub-section (4) of section 22, or sub-section (2) of section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient caused from complying, with the terms of the last-mentioned notice, the Income-tax Officer shall cancel the assessment and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de as to whether the income belonged to the family or to the member as an individual. The Income-tax Officer made an inquiry and found that the income did not belong to the family and assessed on the 24th January, 1952, the individual on the said income. The assessee went up in appeal against the order of assessment on the 24th January, 1952, on two grounds, firstly that the Appellate Assistant Commissioner could direct a fresh inquiry and fresh assessment under clause (b) of section 31(3) only in respect of the person who had appealed, namely, the Hindu undivided family in that case and not of any other person and thus the fresh assessment made was barred by limitation. The contention of the assessee was repelled. It was held by the Allahabad High Court that as the appellant was the Hindu undivided family and the Hindu undivided family is a compendious name given to all its members, the individual member of the family was also a party to that appeal and, if that was so, the Appellate Assistant Commissioner had power under section 31(3)(b) to direct fresh assessment of the member of the family. When the Appellate Assistant Commissioner directed an inquiry as to whether the income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antsen Dwarhadas [1963] 49 ITR (SC) 1, have held that the words any person m the proviso to section 34(3) are ultra vires. Mr. Pathak's contention on behalf of the department further is that from the order passed by the Income-tax Officer under section 27 of the Income-tax Act it will be clear that the Income-tax Officer has treated the return filed by Sanwarmal Saharia on the 29th October, 1959, on behalf of the undivided family as a return filed by him in his individual capacity and as when the ex parte order was passed the fact of the return being filed on the 29th October, 1959, was ignored, the ex parte assessment was held to be void and fresh assessment was directed to be made. Even if that be so, the result which follows from this contention is that it was Sri Sanwarmal Saharia as an individual who was to be assessed afresh and not the undivided Hindu family. It was not open to the Income-tax Officer to treat the return filed on the 29th October, 1959, to be one filed by Sri Sanwarmal Saharia as an individual and then on that basis assess the Hindu undivided family beyond four years. It being a return filed by the undivided family on the 29th October, 1959, the undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,702 and ₹ 4,84,045 after grossing up, were included in the total income of the undivided family for the assessment years 1955-56 and 1956-57 respectively. The contention of the assessee is that as the undivided family which owned these three business concerns was not entered as shareholder in the register of the company of Messrs. Shyam Sunder Tea Co. Ltd. (hereinafter called the company ), any advance made to the business which belonged to the undivided family cannot be deemed to be a dividend as defined by section 2(6A)(e) of the Income-tax Act. Nor can it be taxed as a dividend income in the hands of the undivided family. It could only be taxed as a dividend income in the hands of Sri Sanwarmal Saharia as an individual as his name was entered as a shareholder in the share registers of the company. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer directing inclusion of these amounts in the income of the undivided family, but reduced the quantum of the net dividend for the year 1956-57 to ₹ 3,43,505. The assessee went up in appeal to the Income-tax Appellate Tribunal and urged that the dividend in the hands of the shareholders reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dividend. Section 12(1A) of the Act lays down that income from other sources shall include dividends, and any dividend declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause ( e) of clause (6A) of section 2, shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be. Reading these three sections together it will appear that any dividend declared or distributed or paid will be deemed to be the income by other sources and such a dividend whether it is actual or notional will be included in the income of the assessee. Section 2(6A)(e) regards the payment made to a shareholder as dividend. The contention of the assessee is 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. It also cannot be disputed that the advance made to the 3 business concerns was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as the case may be, and credit shall be given to him therefore on the production of the certificate furnished under sub-section (9) in the assessment, if any, made for the following year under this Act. It is only the registered shareholder who can get the benefit of section 18(5) and not a beneficial owner of the shares even though that may be the undivided Hindu family. It is inconceivable that the Hindu undivided family should have to pay income-tax on the advance made to it as dividend income and should not be entitled to the benefits of section 18(5) which can be claimed only by the recorded shareholder. If under section 18(5) it is only the recorded shareholder who can get the benefit, then it necessarily follows that the advance made to him can only be regarded as his income, The accumulated profit of the company out of which the dividend is paid, distributed or any advance is paid which is regarded as a dividend under section 2(6A)(e) is taxed as the profit in the hands of the company itself and when it is distributed, the shareholder to whom it is given as a dividend is entitled to get certain benefit under section 18(5). If the advance made to the recorded shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts were that the assessee had received certain sums in the relevant years as income from dividends. The shares in respect of the dividend income received were the property of the applicant but in the books of the various companies these stood in the names of other persons. These shares were purchased by the assessee from other persons under blank transfer but the transfer had not been registered. On that basis the assessee had claimed that although these shares were not registered in his name, these were his property and thus this dividend income should be grossed up under section 16(2) and credit for the tax deducted should be allowed to the applicant under section 18(5). This was rejected by the Income-tax Officer. The Supreme Court held that although the shares were owned by the assessee, as his name was not registered in the books of the company, he was not a shareholder in respect of such shares within the meaning of section 18(5) of the Act and was thus not entitled to have his dividend income grossed up under section 16(2) of the Act by the addition of the income-tax paid by the company in respect of those shares and claimed credit for the tax deducted at source under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department that the word shareholder in section 23A means the person who owns the shares irrespective of the circumstance whether that person is registered in the books of the company as a shareholder or not. This argument was based on the reasoning that the very object of the section is to prevent avoidance of super-tax by the shareholders of a company, and if the beneficial owner of the shares is a Hindu undivided family, that family will not come within the purview of section 23A, because a Hindu undivided family as such cannot be a shareholder in a company and this narrow interpretation put on section 23A will defeat the very purpose of the section, and the second argument was that the legal fiction must be carried to its logical conclusion. Both these arguments were repelled. The following observation is apposite: The question is really one of interpretation of section 23A, and we must interpret section 23A with reference to its own terms. The section in express terms says that ' the proportionate share of each shareholder shall be included in the total income of the shareholder for the purpose of assessing his total income'. The section does not talk of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal dividend created by the section shall be included in the total income of such shareholder for the purpose of assessing his total income . Regarding the case of Howrah Trading Co. Ltd. [1959] 36 ITR 215 ; [1959] Supp. 2 SC.R. 484, it remarked that the credit of tax allowable under section 18(5) was available only to the person registered as a shareholder and not to the purchaser of the share under a blank transfer. The section expressly lays down that such credit for tax paid at source by the company concerned shall be given to him . This also, according to the Tribunal, by necessary implication confines the allowance of the credit to the registered shareholder and not the beneficial or equitable owner of the shares. The Tribunal further observed that section 2(6A)(e) while providing that dividend shall include loans or advances paid by a private company to a shareholder , which, no doubt, means a registered shareholder, does not lay down that such dividend is in the total income of that shareholder. The Tribunal is not right in distinguishing the cases on the ground indicated above. Their Lordships decided those cases on the interpretation of the word shareholder occurrin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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