BANERJEE, J. - (1.) : By an order under s. 66(2) of the Indian IT Act, this Court called upon the 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 s. 23A in the case of M/s S. K. Sen and Sons Ltd. should be excluded on the ground that the assessee was not the registered shareholder ?"
(2.) THE question of law arises in the circumstances hereinafter stated. THEre was a firm known as M/s Sen and Pandit. 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 M/s S. K. Sen and Sons Limited. On or about September 26, 1951, the firm known as M/s Sen and Pandit was dissolved and its assets and liabilities were taken over by a private limited company named M/s Sen and Pandit Private Limited. THE transfer of assets to the last named private company included the shares held by M/s Sen and Pandit firm in the company known as M/s S. K. Sen and Sons Limited. M/s Sen and Pandit Private Limited, however, did not take steps to have their names mutated in the books of M/s S. K. Sen and Sons Limited, in respect of the shares which they took over. There were two order made by the ITO against M/s S. K. Sen and Sons Limited, under s. 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 M/s S. K. Sen and Sons Limited. Since M/s Sen and Pandit firm, the registered shareholder, stood dissolved at the time when the ITO made the order under s. 23A, a proportion of the dividend deemed to have been received by M/s Sen and Pandit was included in the income of the assessee as a partner of the firm, which was the registered shareholder. This was done by a proceeding started under s. 34 of the Indian IT Act, because the assessment of the assessee stood completed theretobefore. The assessee objected to the reassessment and preferred an appeal before the AAC. The appeal failed. Thereupon, the assessee took a second appeal before the Tribunal. That Tribunal reversed the order of the AAC with the following observations : "After the decision of the Supreme Court in the case of CIT vs. Shakuntala (1961) 43 ITR 352 (SC), it has been firmly established that the word" shareholder "in s. 23A of the Indian IT 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 shareholder of a company, against which an order under s. 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 M/s Sen and Pandit was the registered shareholder of the company, M/s S. K. Sen and Sons Ltd. The assessee was not a shareholder of the 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, there-fore, that in 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 s. 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 s. 23A shall be excluded."
(3.) AGGRIEVED by the order of the Tribunal, the CIT 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 s. 66(2) of the Indian IT 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 the Supreme Court in CIT vs. Shakuntala (supra) was not attracted. The special fact on which he emphasised was that the firm M/s Sen and Pandit stood dissolved at the point of time when the order under s. 23A was made and the dividend deemed to have been declared was, therefore, rightly included 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 than if a registered shareholder became non-existent, it was open to the ITO 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 vs. CIT (1966) 60 ITR 500 (SC). 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 Shakuntal's case (supra). This is what was expressly pointed out in the above judgment of the Supreme Court in the following language : "The Court in Shakuntala's case (supra) was dealing with notional income. The amounts which were not distributed by the company, but which by virtue of an order under s. 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 s. 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 s. 23A, the expression "shareholder"meant only the registered shareholder and not an equitable owner. The decision has no bearing on the true interpretation of s. 16(2)." ;