D.K. Kapur, J.
1. For the assessment year 1957-58, the following two questions have been referred to us under section 66(1) of the Income-tax Act, 1922 :
'(1) Whether, on the facts and in the circumstances of the case, the initiation of proceedings under section 147(a) was justified
(2) Whether, on the facts and in the circumstances of the case, the assessed (individual) was assessable under section 2(6A)(e) in respect of the advances made by the company to the firm during the period October 1, 1955, to September 30, 1956 ?'
2. These questions have been referred as a result of separate applications by the assessed and the Additional Commissioner of Income-tax. Question No. (1) is at the instance of the assessed and question No. (2) at the instance of the Department.
3. It is convenient to deal with question No. (2) first. There was an account in the books of M/s. Lakshmiji Sugar Mills Co. (P.) Ltd. during the period October 1, 1955, to September 30, 1956, in the name of M/s. Ajudhiya Pershad & Sons, which showed a total debit during the period October 1, 1955, to September 30, 1956, amounting to Rs. 5,09,764. After the assessment of the assessed had been completed for the assessment year in question, the Income-tax Officer came to the conclusion that this advance had been made to the assessed and he accordingly reopened the case under section 147A(a). He found that the peak debit in the account in favor of M/s. Ajudhiya Pershad and Sons was Rs. 1,69,190. After deducting the sum of Rs. 12,440 which was declared by the company as dividend and adjusted against the account of the assessed's sons, the balance of Rs. 1,56,750 was treated as dividend income under section 2(6A)(e) of the Income-tax Act, 1922. He also rejected the contention that section 147(a) was not attracted to the case.
4. On appeal to the Appellate Assistant Commissioner, it was contended that it was not the duty of the assessed to file any accounts relating to the firm, M/s. Ajudhiya Pershad & Sons, in the personal return and hence section 147(a) was not attracted. This contention was accepted by the Appellate Assistant Commissioner. On merits, it was argued that R. B. Seth Ram Rattan was a partner in M/s. Ajudhiya Pershad & Sons in his capacity as karta of R. B. Seth Ram Rattan and sons, Hindu undivided family, and, hence, any advance or loan to M/s. Ajudhiya Pershad and Sons could not be treated as an advance to the assessed.
5. The Department appealed to the Tribunal which held that section 147(a) was attracted, but came to the conclusion that the amount was not taxable under section 2(6A)(e) of the Act of 1922.
6. As we are dealing with the second question first, it is necessary to note some facts. The company, M/s. Lakshmiji Sugar Mills Co. (P.) Ltd., includes amongst its shareholders, R. B. Seth Ram Rattan and other persons who appeared to be his relations. But, according to what is stated in the analysis of facts contained in the original assessment order in the present assessed's case, these shares were originally held by a Hindu undivided family and came to the assessed during the accounting period March 31, 1956, to March 31, 1957. The exact date is not specified. So it means that the assessed was a shareholder of M/s. Lakshmiji Sugar Mills Co. (P.) Ltd. The loan was advanced to a firm known as R. B. Seth Ajudhiya Pershad and Sons, which was dissolved as per dissolution deed dated June 16, 1960, with effect from March 31, 1956. It appears that one of the partners of this firm was R. B. Seth Ram Rattan in his capacity as karta of a Hindu undivided family, constituted of himself and his sons. According to this dissolution deed, the assets and liabilities were taken over by R. B. Seth Ram Rattan with effect from March 31, 1956. It has been observed in the order of the Tribunal that after the dissolution, the assets and liabilities would also belong to the Hindu undivided family and, hence, the loan, if any, would also belong to that Hindu undivided family.
7. It has been submitted before us by the learned counsel that the assets and liabilities will belong to the assessed personally, but we fail to see how this can happen when the assessed was only a partner representing the Hindu undivided family as karta. The share in the partnership belonged to the Hindu undivided family and was Hindu undivided property. Any assets and liabilities coming on dissolution to the partner would remain Hindu undivided property. Thus, the loan, if any, would also belong to the Hindu undivided family. It may be noticed that the period of debit mentioned in the statement of the case was for the period October 1, 1955, to September 30, 1956. So, the loan or advance was made to the firm before it was dissolved. From some facts stated in the assessment order, it appears that some advantage was also made after the dissolution and, in fact, the peak debit is also after March 31, 1956. In this connection, it may be mentioned that on September 3, 1956, a loan was advanced to Pt. Gobind Ram on the personal guarantee of M/s. R. B. Seth Ajudhiya Pershad and Sons and so it has been treated as an advance to the assessed.
8. It seems that the present question can be answered by reference to section 2(6A)(e) of the Act of 1922, which states that any advance or loan to a shareholder by a company in which the public is not substantially interested is to be treated as a dividend to the extent to which the company possesses accumulated profits. Assuming that there were accumulated profits with M/s. Lakshmiji Sugar Mills Co. (P) Ltd. amounting to Rs. 1,56,750 on September 3, 1956, this amount could have been treated as dividend. There is no finding by any one when the payment was made out of accumulated profits. Also, the sum of Rs. 1,33,000 advanced on September 3, 1956, to Pt. Gobind Ram was repaid on September 29, 1956. So, there is some doubt whether this can be deemed to be a long or advance amounting to dividend. However, the short point in this case as that the advance was made mainly to Pt. Gobind Ram who was not the assessed. Assuming it was made at the instance of M/s. Ajudhiya Pershad & Sons because they had guaranteed it, it would be a moot question whether it could be classified as a dividend to the assessed. However, if the conclusion is that the partnership was formed by R. B. Seth Ram Rattan in his capacity as karta with others, it would follow that this advance, even if assumed to have been made to the Hindu undivided family, could not be treated as an advance to the assessed himself in his individual capacity.
9. The judgment of the Supreme Court in Rameshwarlal Sanwarmal v. CIT : 122ITR1(SC) , shows that it is the registered shareholder who must get the advance or loan. In that case, the advance was to a Hindu undivided family, but the karta was a shareholder. The court held that if the beneficial ownership vests with the Hindu undivided family, but the karta is the registered owner, then it is not the registered owner who is getting the loan and, thereforee, section 2(6A)(e) of the Act of 1922 was not attracted. The case is similar here. The loan was advanced to Pt. Gobind Ram who was not a registered shareholder. It was deemed to be advanced to the assessed because it was under the guarantee of M/s. R. B. Seth Ajudhiya Pershad & Sons. Assuming that the latter firm had been dissolved and the assets and liabilities had come to the Hindu undivided family of which the assessed was the karta, even then this judgment of the Supreme Court will apply with full force. The karta would be the registered shareholder and the advance would be to the Hindu undivided family.
10. We have examined the facts in some detail to see if the advance was to the assessed personally and we have not been able to find any fact suggesting the same. The period of advance was, admittedly, from September 1, 1955, to October 1, 1956. This means that there was no advance to the assessed before this assessment year and we fail to understand when the money was advanced to the assessed during this year. thereforee, section 2(6A)(e) of the Act of 1922 was rightly held by the Tribunal not to apply to this case. We answer the second question in the negative, against the Department and in favor of the assessed.
11. Turning now to the first question, we find that there is some doubt about the application of section 147(a). Can it be said that the assessed has failed to disclose fully and truly all material facts necessary for his assessments As stated above, the facts in this case are somewhat confusing. The period of advance October 1, 1955, to September 30, 1956, overlaps with two assessment years of the assessed. If the advance was made to the assessed, it has not been disclosed. The terms of the dissolution deed would suggest that the assets and liabilities were taken over by R. B. Seth Ram Rattan and, thereforee, the primary fact of no-disclosure would prima facie exist. It was only on the ascertainment and analysis of this fact that it could be discovered whether the advance was to the assessed personally in his individual capacity or to a firm of which he was a partner as a karta in a representative capacity, and whether after the dissolution, he became the owner of the assets and liabilities in his individual capacity, or whether the assets and liabilities passed to the Hindu undivided family, which he was representing as karta. On the facts as they are, we are of the view that the provisions of section 147(a) were attracted as, prima facie, the Income-tax Officer could conclude that the full facts had not been disclosed. This would given him the authority to reopen the assessment. However, after the return was filed and a more detailed picture of the nature of the transaction became available to the Income-tax Officer, it would appear that the initial presumption or conclusion regarding non-disclosure might disappear because of the facts detailed above which go to show that the advance was not made to the registered shareholder, but either to Pt. Gobind Ram, who was not a shareholder but an outsider or to the Hindu undivided family who was the beneficial owner of the shares in question. As the inference is that the reopening could be done by the Income-tax Officer as otherwise the true facts would never be found out, we would answer the question in the affirmative and in favor of the Department. The jurisdiction to reopen does not necessarily lead to the conclusion that there has been an escapement of income from assessment.
12. In view of the answers being partly in favor of the Department and partly in favor of the assessed, we leave both parties to bear their own costs.