Case: Commissioner of Income Tax, Assam, Tripura, Manipur and Nagaland Vs. Rameshwarlal Sanwarmal

Civil Appeals Nos. 1956 and 1957 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 Commissioner 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 section 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 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 Shri S. M. Saharia, as an individual, was barred by limaitation ?2. Whether, on the facts and in the circumstances of the case, and on a true interpretation of the terms of section 2(6A)(c) 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 Sunder Tea Co. (P.) 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 jistified in holding that the Hindu undivided family of Hanutram Ramprotap was not a shareholder in M/s. Shyam Sunder 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 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 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 ? "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, in view of the answers given to the second question, there was no need to answer the remaining questions

Court's reasoning:
3. It is not the case of the department that the assessment in question either falls under clause (c) ofn (1) of section 28 or clause (a) ofn (1) orn (1A) of section 34. Therefore, the department cannot take any assistance from the main section 34(3)5. 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 Hindu undivided family. 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 Hindu undivided family. The individual and the Hindu undivided family 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 section 27 was the assessment made on him in the status of an individual. There was no assessment against the Hindu undivided family. Hence, there was no question of setting aside any assessment made against the Hindu undivided family. On February 6, 1961, the Hindu undivided family was assessed for the first time though thex Officer wrongly called it as a fresh assessment. On the facts established, it is not possible to come to the conclusion that the assessment made against the Hindu undivided family was an assessment under section 27. That being so, the assessment made against the Hindu undivided family on February 6, 1961, is clearly barred by time. Hence, the High Court was justified in answering the first question against the departmentNow, coming to the second question, the relevant facts are these7. It is not disputed that M/s. Shyam Sunder Tea Co. (P.) Ltd. is not a company in which the public are substantially interested. It is a private company. The only question that was in issue was that as the shares in question stood in the name of Saharia, can they in law be considered as the shares of the Hindu undivided family ? The High Court held that, 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 Hindu undivided family cannot come within the scope of clause (e) to section 2(6A). In arriving at the conclusion, the High Court differed from the view taken by the Mysore High Court in Kishanchand Lundasingh Bajaj v. Commissioner ofx , wherein that court held that the provisions of section 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 tox dividend income derived by a benami holder of shares should be treated as his own income and not that of the real owner of the shares which have yielded the dividend income. That decision was affirmed by this court in Kishanchand, Lunidasingh Bajaj v. Commissioner of. Therein, this court held that where the shares acquired with the funds of the Hindu undivided family were held in the name of the karta, the Hindu undivided family 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 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 assessment year, the same cannot be brought to tax, as assessment in respect of that year was not made within the time prescribed