JAMES ANDERSON Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Sub -S. (1) of S. 66 of the Indian IT Act (hereinafter referred to as the Act). We are concerned with the asst. year 1948 -49, the relevant previous year being the year ending on 31st March, 1948.

(2.) ONE Mr. Henry Gannon died testate on 13th May, 1945, leaving behind his will of date 18th Nov., 1942, and considerable property. The national Bank of India in England was under the will appointed as executors. The will was probated by the National Band of India in England. The deceased had left behind some estate in India. The National Bank of India, therefore, gave power of attorney to one Mr. James Anderson, the assessee in this case. The assessee applied to this Court under S. 241 of the Indian Succession Act and was granted letters of administration with a copy of the will annexed to the estate of the deceased in British India. The letters of administration were granted on 14th Aug., 1946. The deceased, Mr. Gannon, possessed 2,674 shares of a private limited Indian company known as Gannon Dunkerley & Co. Ltd. (hereinafter referred to as the "company"). By cl. 5 of the will the deceased had bequeathed 450 out of the 2,674 shares to six legatees mentioned in the will. In the course of administration the assessee handed over the share certificates as well as the transfer deeds in respects of the 450 shares to six legatees. As regards the remaining 2,224 shares a tripartite agreement was reached between the National Bank of India Ltd., as the executors of the will of the deceased, the company and one Mr. Morarka. There were certain other parties to this agreement but we are not concerned with them here. Under this agreement, the executors agreed to sell the said 2,224 shares to Mr. Morarka and the company consented to it. Clause 5 of the agreement provided that the completion of the purchase and sale of the shares to be purchased and sold under the agreement shall be completed within three months from the date of the agreement and the transferor, i.e., the executors, shall respectively on or before that date furnish to the purchasers transfers duly signed by the transferors with the relative certificates, failing which the company shall be entitled to proceed in the manner authorised by Art. 22 and to enter in the register the name of the purchaser as the holder of the shares, if any, in respect of which any of the transferors is in default and to hold the purchase moneys relating thereto in trust for such defaulting transferor. The price agreed to be paid by Mr. Morarka was Rs. 1,240 per share. The executors, as regards the holding of the 2,224 shares of the late Mr. Gannon were to receive Rs. 27,57,760 on handing over the share certificates and transfers duly signed in favour of the purchasers. The relevant share certificates and the transfer deeds were hand over to the purchaser, Mr. Morarka, on 12th Oct., 1946, and the assessee received the sale price. The sale of the shares effected resulted in capital gains. The sale of these shares was the subject -matter of an assessment for capital gains in the asst. yrs. 1947 -48 and 1948 -49 when sums of Rs. 20,13,738 and Rs. 1,51,963 respectively were brought to assessment under S. 12B of the IT Act. The names of the transfers, however, were not brought on record in the share register of the company. The shares continued to stand in the names of the previous owner, viz., the late Mr. Henry Gannon. For the asst. yrs. 1946 -47 and 1947 -48 the ITO concerned applied the provisions of S. 23A of the Act and by his order dt. the 26th March, 1953, ordered that the undistributed portion of the assessable income of the company of the relevant previous year as computed for income -tax purposes and reduced by the amount of income -tax and super -tax payable by it in respect thereof shall be deemed to have been distributed as dividends among the shareholders as at the date of the relevant annual general meetings held on 26th May, 1947, and 22nd Dec., 1947, respectively. The net dividend income thus deemed to have been distributed in respect of the said 2,224 shares amounted to Rs. 61,051 as on 26th May, 1947, and Rs. 3,73,099 as on 22nd Dec., 1947. Two days after making this order, i.e., on 28th of March, 1953, the ITO issued a notice under S. 34(1) (b) of the Act to the assessee calling upon him to deliver a return of his total income and total world income assessable for the assessment year ending 31st March, 1949, as in his view the assessee's income assessable to income -tax for the year ending 31st March, 1949, had escaped assessment and he , therefore, proposed to reassess the said income that has escaped assessment. A notice was addressed to "Mr. James Anderson, administrator to the estate of the late Mr. Henry Gannon, C/o. The National Band of India Ltd., Mahatma Gandhi Road, Bombay". The assessee, after obtaining some adjournments, filed a return on 13th Oct., 1953, where under he returned an income of Rs. 2,56,602. It is to be noticed that, in the return filed, the assessee had not included the aforesaid deemed dividend income amounting to Rs. 61,051 and Rs. 3,73,099; total Rs. 4,34,150. Before the ITO the assessee objected to the addition of the said amount of Rs. 4,34,150 to his income on various grounds. The ITO, however, overruling the objections raised by the assessee, added the said amount of Rs. 4,34,150 to the assessee's income. After grossing up the dividend income, the ITO reassessed the total income of the assessee under S. 34(1) (b) of the Act at Rs. 8,88,093. Against this order of the ITO, the assessee took an appeal to the Appellate Asstt. CIT. The assessee, inter alia, contended before the appellate authority that the shares were sold in 1946; that the department had already collected capital gains tax on the same and that would clearly establish that the shares had already been sold and, therefore, the assessment was wrongly made. The assessee further contended that at any rate the dividend income cannot be added to his assessment, as the shares stood in the name of the late Mr. Henry Gannon and the assessment, if at all it can be made, should have been made on this on this person and not on the administrator. The assessee also contended that the notice that was issued to the assessee as an administrator to the late Mr. Gannon was not rightly issued and the assessment made was null and void. The AAC found that the shares, no doubt, were sold in the year 1946; the shares, however, continued to stand in the name of the late Mr. Gannon. Relying on the case of Shree Shakti Mills Ltd. (1948) 16 ITR 187, he held that the assessee was liable to be assessed in respect of the aforesaid deemed dividend income. In this view of the matter, the AAC dismissed the appeal. A second appeal was taken by the assessee to the Tribunal and before the Tribunal the following seven contentions were raised:

(3.) IN this view of the matter, the appeal of the assessee was dismissed by the Tribunal. On an application made by the assessee under Sub -S. (1) of S. 66 of the Act, the Tribunal, raising the following two questions, has submitted a statement of the case to this Court. The questions referred to us are :