BANERJEE J. - By an order under section 66(2) of the Indian Income-tax Act, this court called upon the Appellate Tribunal to send a statement of case on the following question of law :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount included as dividend in the total income of the assessee in consequence of an order under section 23A in the case of Messrs. S. K. Sen & Sons Ltd. should be excluded on the ground that the assessee was not the registered shareholder ?'
The question of law arises in the circumstances hereinafter stated. There was a firm known as Messrs. Sen and Pundit. The assessee Sudhir Kumar Sen, was, at one time, a partner of the said firm. The firm above named was a shareholder of a limited company known as Messrs. S. K. Sen and Sons Limited. On or about September 26, 1951, the firm known as Messrs. Sen and Pandit was dissolved and its assets and liabilities were taken over by a private limited company named Messrs. Sen and Pandit Private Limited. The transfer of assets to the last named private company included the shares held by Messrs. Sen and Pandit firm in the company know as Messrs. S. K. Sen and Sons Limited. Messrs. Sen and Pandit Private Limited, however, did not take steps to have their names mutated in the books of Messes S. K. Sen and Sons Limited, in respect of the shares which they took over.
There were two orders made by the Income-tax Officer against Messrs. S. K. Sen and Sons Limited, under section 23A, as it stood prior to the amendment of 1955, for the two assessment years in question and two different amounts were deemed to have been distributed as dividends to the shareholders of Messrs. S. K. Sen and Sons Limited. Since Messrs. Sen and Pandit firm, the registered shareholder, stood dissolved at the time when the Income-tax Officer made the order under section 23A, a proportion of the dividend deemed to have been received by Messrs. Sen and Pandit was included in the income of the assessee as a partner of the firm, which was registered shareholder.
This was done by a proceeding started under section 34 of the Indian Income-tax Act, because the assessment of the assessee stood completed thereto before. The assessee object to the reassessment and preferred an appeal before the Appellate Assistant Commissioner. The appeal failed. Thereupon, the assessee took second appeal before the Appellate Assistant commissioner with the following observations :
'After the decision of the Supreme Court in the case of Commissioner of Income-tax v. Shakuntala it has been firmly established that the word 'shareholder' in section 23A of the Indian Income-tax Act, 1922, means the shareholder registered in the books of the company and the amount of the dividend deemed to have been distributed to the shareholders of a company, against which an order under section 23A has been made, could be assessed only in the hands of the registered shareholder and nobody else. In the present case, admittedly, the firm styled Messrs. Sen & Pandit was the registered shareholder of the company, Masers. S. K. Sen & sons Ltd. The assessee was not a shareholders of that company. It is no doubt true that a firm is not a legal entity for all purposes and it is doubtful whether a firm could legally be registered as a shareholder of a limited company, but the fact remains that the firm in question had actually been registered in the books of the limited company and it is an assessable entity. It is manifest, therefore, that in the view of the principle laid down by the Supreme Court in the aforesaid case the assessment of the dividend deemed to have been distributed to the shareholders as a result of action under section 23A taken against the limited company, could not have been made in the hands of the assessee who was not the registered shareholder. The amount included as dividend in the total income of the assessee in consequence of order under section 23A shall be excluded.'
Aggrieved by the order of the Tribunal, the Commissioner of Income-tax tried to induce the Tribunal to refer the question of law hereinbefore stated and therein failing, applied before this court and obtained an order under section 66 (2) of the Indian Income-tax Act calling for a statement on the question of law quoted at the beginning of this judgment.
Mr. B. L. Pal, learned counsel for the revenue, submitted that in the special facts of this case the decision of Supreme Court in Commissioner of Income-tax v. Shakuntala was not attracted. The special fact on which he emphasised was that the firm Messrs. Sen and Pandit stood dissolved at the point of time when the order under section 23A was made an the dividend deemed to have declared was, therefore, rightly included in the income of the partners of the dissolved firm. He further submitted that, although registered shareholders were ordinarily to be considered as persons who received the deemed dividend, still then if a registered shareholder became non-existent, it was open to the Income-tax Officer to lift the veil and to find out who were the persons who were interested in the shares, at one time held by the registered shareholder, and to include the deemed dividend in their income. In support of the last proposition he relied upon a decision of the Supreme Court in Kishanchand Lunidasing Bajaj v. Commissioner of Income-tax. In our opinion, there is nothing contained in the last mentioned judgment of the Supreme Court which detracts anything from the observation made by the Supreme Court in Shakuntalas case. This is what was expressly pointed out in the above judgment of the Supreme Court in the following language :
'The court in Shakuntalas case was dealing with notional income. The amounts which were not distributed by the company, but which by virtue of an order under section 23A of the Act were deemed to be distributed were sought to be assessed and the court held in the light of the express provisions of section 23A that the undistributed portion of the distributable income of the company of the previous year as computed for income-tax purposes shall be deemed to be distributed as dividend among the share holders. The decision of the court was that for the purpose of section 23A, the expression 'shareholder' meant only the registered shareholder and not an equitable owner. The decision has no bearing on the true interpretation of section 16(2).'
In Kishanchand Lunidasing Bajajs case the Supreme Court was interpreting the effect of section 3, 4, 16(2) and (18) 5 of the Income-tax Act. The observation made by their Lordship did not touch section 23A. The case of Kishanchand Lunidasing being thus out of the way we find little substance in the argument advanced by Mr. Pal. There is a further reason which induces us to reject the argument advanced by Mr. Pal. Assuming for the sake of argument that on the dissolution of a partnership, which was registered as the shareholder, it was possible to include the deemed dividend in the income of person who became the real owners of the shares held by the dissolved partnership, we find that, in the instant case, the assets of the dissolved firm including the shares in question were taken over by the private limited company of the name of Messrs. Sen & Pandit private Limited. Therefore, even if we proceed on the basis of the argument made by Mr. Pal, the real owner was Messrs. Sen & Pandit Private Limited and the assessee. We, therefore, find neither law nor reasonableness in the arguments advanced by Mr. Pal and we answer the question referred to this Court in the affirmative and in favour of the assessee.
The Commissioner of Income-tax must pay costs of this reference to the assessee.
K. L. Roy J. - I agree.