1965 (5) TMI 47 - HC - Income Tax

Summary

Issues Involved:

1. Limitation on assessment under section 34(3) of the Indian Income-tax Act, 1922.
2. Taxability of amounts as dividends under section 2(6A)(e) of the Income-tax Act, 1922.
3. Capacity in which shares were held by Sri S.M. Saharia.
4. Beneficiary status of the applicant family regarding shares.
5. Shareholder status of the Hindu undivided family of Hanutram Ramprotap.
6. Computation of accumulated profits and deductions under section 2(6A)(e).

Issue-wise Detailed Analysis:

1. Limitation on Assessment under Section 34(3):

The primary issue was whether the assessment for the year 1955-56 on the Hindu undivided family made on February 6, 1961, was barred by limitation. The relevant facts were that an ex parte assessment was initially made on Sri Sanwarmal Saharia as an individual, which was later canceled under section 27, and a fresh assessment was directed. The assessment was made on the Hindu undivided family beyond the four-year limitation period prescribed under section 34(3). The court held that the assessment was barred by limitation as the fresh assessment on the Hindu undivided family could not be deemed to have been made under section 27, which only applied to the individual assessment of Sri Sanwarmal Saharia.

2. Taxability of Amounts as Dividends under Section 2(6A)(e):

The second issue concerned whether the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as dividends in the hands of the Hindu undivided family when the shares were registered in the name of Sri S.M. Saharia. The court held that the term "shareholder" in section 2(6A)(e) refers to the registered shareholder. Since the Hindu undivided family was not the registered shareholder, the amounts advanced to the family businesses could not be taxed as dividends in the hands of the Hindu undivided family.

3. Capacity in which Shares were Held by Sri S.M. Saharia:

The third issue was whether there was any material to justify the conclusion that Sri S.M. Saharia held shares in Messrs. Shyam Sundar Tea Co. Ltd. as the karta of the Hindu undivided family. The Tribunal concluded that Sri S.M. Saharia held the shares in his capacity as the karta of the family. The court, however, emphasized that the registered shareholder's name in the company's books determines the taxability of dividends.

4. Beneficiary Status of the Applicant Family Regarding Shares:

The fourth issue was whether there was any material to justify the finding that the applicant family was the beneficiary of 50 shares registered in the name of Sri S.M. Saharia before the disruption of the joint status of the family of Hanutram Ramprotap. The court noted that the shares were registered in the name of Sri S.M. Saharia, and the Hindu undivided family could not be considered the beneficiary for tax purposes.

5. Shareholder Status of the Hindu Undivided Family of Hanutram Ramprotap:

The fifth issue was whether the Hindu undivided family of Hanutram Ramprotap was a shareholder in Messrs. Shyam Sundar Tea Company (P.) Ltd. up to August 16, 1955. The court reiterated that only the registered shareholder in the company's books could be considered a shareholder for tax purposes, and the Hindu undivided family did not meet this criterion.

6. Computation of Accumulated Profits and Deductions under Section 2(6A)(e):

The sixth issue involved the computation of accumulated profits and whether the Tribunal acted rightly in refusing to allow certain deductions. The court did not delve into this issue in detail, as the primary question regarding the taxability of dividends under section 2(6A)(e) was resolved in favor of the assessee. The court concluded that the amounts advanced to the Hindu undivided family could not be taxed as dividends, rendering the computation of accumulated profits and deductions moot.

Conclusion:

The court answered the first question in the affirmative, holding that the assessment was barred by limitation. For the second question, the court answered in the negative, concluding that the amounts could not be taxed as dividends in the hands of the Hindu undivided family. Consequently, the remaining questions were not addressed, and the assessee was awarded costs of Rs. 250.