K.S Hegde, J.— Civil Appeal Nos. 1956-57 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 Appeal Nos. 1426 and 1427 of 1971. At present we are only concerned with those appeals
2. 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 limitation?
2. Whether on the facts and in the circumstances of the case, and on a true interpretation of the terms of Section 2 (6-A)(e) 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 HUF for 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 Shyam Sunder 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 uptil 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 Hanutram Ramprotap was not a shareholder in M/s Shyam Sundar Tea Company (P) Ltd. uptil 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(6-A)(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 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.”
3. 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. For the reasons to be presently stated, we have come to the conclusion that the answer given by the High Court to the first question is correct and that given by it to the second question is wrong. As a result of our finding, the appeal relating to Assessment Year 1955-56 viz. Civil Appeal No. 1426 of 1971 has to be dismissed. But the appeal relating to Assessment Year 1956-57 should be allowed and the case remitted to the High Court for answering the questions that remain to be answered.
4. Let us first refer to the facts relating to the first question. As mentioned earlier this question exclusively relates to Assessment Year 1955-56, the relevant previous year being Ramnavami year 2011 (ending on March 31, 1955). In respect of that assessment, the Income Tax Officer issued a notice under Section 22(2) to Shri Sanwarmal Saharia in the status of an individual on December 27, 1955. He submitted a return on October 29, 1959 on behalf of his HUF. On February 29, 1960 the Income Tax Officer passed an ex parte assessment order on him as individual under Section 23(4) without issuing any notice under Section 23(2). On March 22, 1960, Saharia filed an application under Section 27 to cancel the ex parte assessment. On December 16, 1960 the Income Tax Officer set aside the order of assessment made on February 29, 1960. Therein he stated that fresh assessment will be made in due course. An assessment was made on the HUF on February 6, 1961 on the basis of the return submitted on October 29, 1959. Prima facie this assessment is barred by Section 34(3) which says:
“No order of assessment or reassessment, other than an order of assessment under Section 23 to which clause (c) of sub-section (1) of Section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1-A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable.”
5. It is not the case of the Department that the assessment in question either falls under clause (c) of sub-section (1) of Section 28 or clause (a) of sub-section (1) or sub-section (1-A) of Section 34. Therefore the Department cannot take any assistance from the main Section 34(3). But in support of its contention that the assessment was made within time, reliance was placed by the Department on the second proviso to Section 34(3). That proviso reads:
“Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to reassessment made under Section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 31, Section 33, Section 33-A, Section 33-B, Section 66 or Section 66-A.”
6. What was contended on behalf of the Department is that the re-assessment in this case was made under Section 27. That contention has been upheld by the Appellate Assistant Commissioner as well as by the Tribunal. But the High Court has come to the conclusion that the reassessment was not under that section.
7. 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 HUF. 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 HUF. The individual and the HUF 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 HUF Hence there was no question of setting aside any assessment made against HUF. On February 6, 1961, the HUF was assessed for the first time though the Income Tax 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 HUF was an assessment under Section 27. That being so, the assessment made against the HUF on February 6, 1961 is clearly barred by time. Hence the High Court was justified in answering the first question against the Department.
8. Now coming to the second question, the relevant facts are these.
9. In the relevant previous years to Assessment Years 1955-56 and 1956-57, certain loans had been advanced to the HUF by a company known as M/s Shyam Sunder Tea Co. (P) Ltd. The Tribunal has found that Saharia had held certain shares in that company. Its further finding is that he held those shares as the karta of his HUF. Therefore the question that arose for decision was whether those loans can be considered as “dividends” as provided in clause (e) of Section 2(6-A). There was a #controversy between the parties whether those shares were held by Saharia in his individual capacity or as the karta of the family. That controversy has not been gone into by the High Court. At present we are proceeding on the basis that he held those shares as the karta of his family. Clause (e) of Section 2(6-A) says:
“ ‘dividend’ includes ….
(e) any payment by a company, not being a company in which the public are substantially interested within the meaning of Section 23-A, of any sum (whether as representing a part of the assets of company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits.”
10. It is not disputed that M/s Shyam Sunder Tea Co. (P) Ltd. is not a company in which 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 HUF? 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 HUF cannot come within the scope of clause (e) to Section 2 (6-A). In arriving at that conclusion, the High Court differed from the view taken by the Mysore High Court in Kishanchand Lunidasingh Bajaj v. CIT wherein that court held that the provisions of Sections 18(5), 23-A 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 to income tax 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. CIT AIR 1966 SC 1983. Therein this Court held that where the shares acquired with the funds of HUF were held in the name of the karta, the HUF 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 accounting year previous to Assessment Year 1955-56, the same cannot be brought to tax, as assessment in respect of that year was not made within the time prescribed.
11. In the result Civil Appeal Nos. 1956-57 of 1969 are dismissed as being not maintainable. There will be no order as to costs in those appeals. So far as Civil Appeal No. 1426 of 1971 (appeal relating to Assessment Year 1955-56) is concerned, it is also dismissed but Civil Appeal No. 1427 of 1971 (appeal relating to Assessment Year 1956-57) is allowed to the extent mentioned above and the case remitted to the High Court for answering the questions that were not answered by it. As both sides have partly succeeded and partly failed before this Court, there will be no order as to costs.