Limitation for fresh assessment and deemed dividend taxation apply only to the assessed entity and registered shareholder.
A fresh assessment made after cancellation of an ex parte assessment was held time-barred under section 34(3) of the Indian Income-tax Act, 1922, because the section 27 proceeding could only relate to the assessee actually assessed by the ex parte order; a new assessment on the Hindu undivided family, filed on its own return and made beyond four years, could not be treated as a valid reassessment. Advances by a private company were also held not taxable as deemed dividends under section 2(6A)(e) where the shares stood in the name of the karta individually, since the statutory expression "shareholder" refers to the registered shareholder and not merely the beneficial owner. Both questions were answered for the assessee.
Issues: (i) Whether the fresh assessment made after cancellation of an ex parte assessment under section 27 was barred by limitation under section 34(3) of the Indian Income-tax Act, 1922. (ii) Whether advances made by a private company to business concerns of a Hindu undivided family could be taxed as dividends under section 2(6A)(e) when the shares stood in the name of an individual karta and not in the name of the family.
Issue (i): Whether the fresh assessment made after cancellation of an ex parte assessment under section 27 was barred by limitation under section 34(3) of the Indian Income-tax Act, 1922.
Analysis: The time bar under section 34(3) applied unless the assessment could be treated as one made under section 27. The cancelled ex parte assessment had been made against the karta as an individual, while the fresh assessment was made on the Hindu undivided family on the basis of a return filed by the family. A proceeding under section 27 was available only to the assessee who had actually been assessed by the ex parte order, and a fresh assessment made on a different assessable entity could not be treated as a reassessment under section 27. The return filed by the family could not be ignored, and the assessment made beyond four years from the end of the relevant year was therefore out of time.
Conclusion: The question was answered in the affirmative, in favour of the assessee.
Issue (ii): Whether advances made by a private company to business concerns of a Hindu undivided family could be taxed as dividends under section 2(6A)(e) when the shares stood in the name of an individual karta and not in the name of the family.
Analysis: The expression "shareholder" in sections dealing with dividends and share-linked tax consequences was construed as the registered shareholder whose name appears in the company's books. A Hindu undivided family, not being a registered shareholder, could not be treated as the recipient of a deemed dividend merely because it was the beneficial owner of the business concerns to which the advances were made. The statutory scheme of dividend taxation, including grossing up and credit provisions, attached to the registered shareholder and did not support assessment of the family as the real beneficiary in place of the shareholder named in the register.
Conclusion: The question was answered in the negative, in favour of the assessee.
Final Conclusion: The reference was answered entirely for the assessee, with the assessment held time-barred and the alleged deemed dividend addition rejected.
Ratio Decidendi: Under the 1922 Act, a fresh assessment after cancellation of an ex parte assessment must stay within the limitation applicable to the assessee actually assessed, and deemed dividend provisions apply only to the registered shareholder, not merely to a beneficial owner.
TaxTMI 
AI Drafter ✕
TaxTMI 
