1971 (9) TMI 6 - SC - Income Tax

Notice for reassessment - shares held by the karta could be considered to be the shares held by the family and the loans to the family could fall within the definition of dividend in clause(e) of s. 2(6A) Appeal of revenue are dismissed as being not maintainable

Summary

Issues:
1. Interpretation of the second proviso to section 34(3) for assessing the Hindu undivided family.
2. Whether loans advanced to the Hindu undivided family can be considered as dividends under section 2(6A).

Detailed Analysis:

Issue 1:
The Supreme Court addressed the interpretation of the second proviso to section 34(3) concerning the assessment of a Hindu undivided family. The case involved an assessment made on a Hindu undivided family for the year 1955-56. The Income-tax Officer initially assessed an individual but later assessed the family. The question arose regarding the limitation period for such assessment. The department argued that the assessment was made under section 27, which would not be time-barred. However, the High Court disagreed, stating that the reassessment was not made under section 27. The Supreme Court analyzed the facts and determined that the assessment against the Hindu undivided family was not under section 27, making it time-barred under section 34(3). Consequently, the Supreme Court upheld the High Court's decision on this issue.

Issue 2:
The second issue revolved around whether loans advanced to the Hindu undivided family could be considered as dividends under section 2(6A). The case involved loans given to the family by a company in which the family's karta held shares. The High Court held that the loans were not dividends as the shares were considered to belong to the karta individually. However, the Supreme Court referred to a previous decision where it was established that shares held by the karta on behalf of the family could be assessed as the family's income. Therefore, the Supreme Court disagreed with the High Court's interpretation and ruled in favor of the department on this issue. The Supreme Court clarified that the loans from the previous year could not be taxed due to the assessment not being made within the prescribed time. As a result, the Supreme Court dismissed one appeal and allowed another, remitting the case to the High Court for further consideration of unanswered questions.

In conclusion, the Supreme Court provided a detailed analysis of the issues concerning the assessment of a Hindu undivided family and the classification of loans as dividends under the Income-tax Act. The judgment clarified the legal interpretations and upheld certain decisions while overturning others based on the facts and previous legal precedents.