P. N. Bhagwati, J. - (1.) This appeal by special leave raises a question of law relating to the interpretation of S. 2 (6A) (e) of the Indian Income Tax Act, 1922. The question is in fact concluded by a decision of this Court in Commr. of Income-tax v. C. P. Sarathy Mudaliar (1972) 83 ITR 170), but, it has been argued on behalf of the Revenue that this decision is in conflict with an earlier decision given by this Court in Commr. of Income-tax v. Rameshwarlal Sanwarmal (1971) 82 ITR 628) and hence the question should be referred to a larger Bench. We shall presently consider these two decisions, but we may point out straightaway that, in our opinion, there is no conflict between these two decisions and the question is completely covered by the decision in Commr. of Income-tax v. C. P. Sarathy Mudaliar (supra). The facts giving rise to the appeal are not in dispute and we may briefly state the same in order to appreciate how the question arises for determination.
(2.) The assessee is the Hindu undivided family of M/s Rameshwarlal Sanwarmal consisting of S. M. Saharia as manager and karat and his wife and a minor son. The assessment year with which we are concerned in the appeal is 1956-57, the relevant accounting year being the year ending Ramnavami Sambat 2012, that is 18th April, 1956. During this assessment year, the assessee was the beneficial owner of certain shares in a private limited company called Shyam Sunder Tea Co. (P) Ltd. These shares though beneficially owned of S. M. Saharia in the register of shareholders of the Company. The assessee also owned 3 business concerns, namely, Nilmony Shop, Saharia and Co. and Saharia Industrial Corporation. The Company advanced loans to these 3 business concerns during the relevant assessment year and since it was company in which public were not substantially interested, a question arose in the assessment of the assessee to income-tax, whether the loans advance to these 3 business concerns could be regarded as "deemed dividend" of the assessee under Section 2 (6A) (e) of the Act The Income-tax Officer took the view that the loans advanced to the 3 business concerns were attributable to the accumulated profits of the company to the extent of Rs. 4,48,045/- and since the assessee which owned the 3 business concerns was the beneficial owner of the shares standing in the name of S. M. Saharia, the conditions of Section 2 (6A) (e) were satisfied and the loans were liable to be regarded as "deemed dividend" taxable in the hands of the assesee under Section 2 (6A) (e). The assessee preferred an appeal against the order of assessment but the Appellate Assistant Commissioner agreed with the view taken by the Income-tax Officer and held that since S. M. Saharia held shares in the company as representing the assessee and the loans were advanced to the three business concerns belonging to the assessee out of the accumulated profits of the company the Income-tax Officer was justified in treating the loans as "deemed dividend" under Section 2 (6A) (e) and taxing them in the hands of the assessee. The matter was carried in further appeal to the Tribunal and several arguments were advanced on behalf of the assessee resisting the applicability of Section 2 (6A) (e), out of them, there are two which are material for our purpose and they are:first, that since the assessee was not a registered holder of shares in the company, the loans advanced to the three business concerns of the assessee could not be regarded as loans advanced to a shareholder so as to attract the applicability of Sec. 2 (6A) (e); and secondly, even if the loans could be treated as "deemed dividend" under Sect. 2 (6A) (e), they could be taxed only in the hands of S. M. Saharia, the registered shareholder and not in the hands of the assessee. Both these arguments were negatived by the Tribunal and so also where the other subordinate arguments and the appeal was rejected and the assessment confirmed. This led to a reference application by the assessee and on the application, five questions of law were referred by the Tribunal to the High Court. There were, in fact, six questions but for the purpose of the present appeal, it is not necessary to refer to the first question, since it related to the assessment year 1955-56 and it raised a point of limitation which was ultimately decided in favour of the assessee and there is no dispute about it. The other five questions related to the taxability of the loans advanced to the three business concerns of the assessee as "deemed dividend" under Section 2 (6A) (e) and each of these question brought in issue different aspect of taxability. It is the first of these question which is material and we may reproduce it as follows: "Whether on the facts and in the circumstances of the case, and on a true interpretation of the terms of Section 2 (6A) (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 H. U. F. for the 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 - This question referred to both the assessment years 1955-56 and 1956-57, but we are not concerned in this appeal with the controversy relating to the assessment year 1955-56 and hence we shall confine ourselves only to the assessment year 1956-57.
(3.) Now two distinct aspects were comprised in this question and both were argued before the High Court. One was whether the loans advanced to the three business concerns of the assessee could be regarded as "deemed dividend"within the meaning of Secion 2 (6A) (e) and the other was whether these loans, even if regarded as "deemed dividend" could be taxed in the hands of the assessee. The High Court decided both these aspects of the question in favour of the assessee and held that the word "shareholder" in Section 2 (6A) (e) mean a registered shareholder or in other words, a shareholder whose name is recorded in the register of the company as the holder of the shares and since the advance in the present case was made to the assessee which was not a registered shareholder, it could not be regarded as "deemed dividend" within the meaning of Section 2 (6A) (e) and that even if it be assumed that the advance was liable to be regarded as "deemed dividend" under Section 2 (6A) (e), it could be taxed as dividend income only of the registered shareholder and not of the assessee. This view taken by the High Court rendered it unnecessary to decide the other four questions and the High Court accordingly declined to consider them. The result of this decision was that the assessment made by the Revenue Authorities was set aside in so far as it included the loans advanced by the company to the three business concerns of the assessee as deemed dividend and taxed it in the hands of the assessee.;