THE INCOME TAX OFFICER versus ARVIND N. MAFATLAL

AYYANGAR, J.-These four appeals are pursuant to certificates granted by the High Court of Bombay under Art. 133(l)(c} of the constitution and raise identical questions for consideration.

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'rhe respondent in these four appeals are each of the four partners in a firm constituted under the name of Mafatlal Gagalbhai & Sons and which was composed of Navinchandra Mafatlal, Arvind N. Mafatlal, Yoginder N. Mafatlal and Homant Mafatlal with shares of 5/16, 3/16, 3/16. and 5/16 respectively in that firm (It has to be mentioned that Navinchandra died subsequent to the decision of the High Court and his legal representatives have been brought on record in Civil Appeal No. 502of19f9 but this circumstance being irrelevant we are ignoring it for the purposes of these appeals). The firm was registered under the Indian Income Tax Act. There was a private limited company named Mafatlal Apte and Kantilal Limited registered under the Phaltan State Companies Act. Ten Shares in this private company stood in the name of Navin Chandra, 10 in the name of Arvind and 20 in the name of Hamant. For the account year of the company ending Sep- . tember 30, 1945 tl:>e company disclosed a net profit of Rs. 1,09,165/-. The company, however, did not declare any dividend out of those profits but paid income-tax and super-tax thereon. After the merger of the Phaltan State in the Indian Union and the extension of the provisions of the Indian Income Tax Act thereto, the Income Tax Officer who had jurisdiction over the assessment of the company, issued notice to it under s. 34 of the Indian Income Tax Act and acting under the provisions of s. ~3A thereof directed that the undistributed assessable incom!' of the company which amounted to Rs. 68,228/- should be deell'.led to have been djstribnted as divide:nd among the shareholders as on the date of the General Rody Meeting of the company (i.e., on Jia.rch II 1940). Before the <late of thiH order the aHsessment of the firm of Mafatlal Gagalbhai & Sons and the individual aRscssrnent of its four partners had been compl<'td. In order to bring to tax the undistribu· ted dividend "deemed to bo declared" under s. 23A among the shareholderR of the compan.v notices were i;;sued to tlw foul' partners under s. 3! of the Inc''llh' T;ix Act. [n response to the notice the partners appeared and it was stated in their behalf that. the 40 shareR heir! by three of the partners in th" company were in fact thn property of the Rq;ist1·red firm and were held by them benami for the fi:m. This eontention was acc~ptl'<I by the Income Tax Oflicer who then'upon treated the divi· d('n<l attributable to the 40 shar('s as tho dividend· income of the firm an•l proceeded to apportion the saicl incunw among the four partners in the. propor. tion of tho shares "·hi1·h each of them held in the firm and added this to the income already assessed, Jn doing so however, the Income Tax OfficBr committ.ccl an error. In recomputing the total income of t:ach of thPoe four ass1·.ss.,t•s lw included only the net dividend "dec:mPrl to he received'' I"· ear.,h but as against thi• addition he allowed a de·;1uctio11 of the tax paid by the company attributable to such dividend. There was no appieal again,;t these assess• mPnt orders which bocamc final. Subsequently this mistake was diR<,overcd and thereupon the Income Tax officer issued notices tu the fuur partnerH on April 1:1, 19;)4 pointing out the error in including in the income the net. divideut without being ~rosse<l up, while at the samu time allowing credit for the I.ax deomed to have b1•cn paid thereon. He a1·crrcd that this was a mi•t.ake apparent from the rncorclH and stated that he intun<le1l to rectify th•i •amo under s. of th<' lnc:ome Tax Act. The four se1>s oi.Jj"ctcd to the rectification, but almost tho o!ltirely of the grounds on which the objection w~' based related to the legality of the original assessment and the assessees desired that if any rectification was to be made it must be in relation to those items and not in regard to that for which notice had been served. The Income Tax Officer by his order dated October 12, 1955 rectified the assessment by grossing up the newly added dividendincome by the addition of the tax deemed to have been paid by the company thereon and retained the original relief granted under 's. 18( 5) of the Act. After unsuccessfully appealing to the higher authorities for relief against this rcetification the assessees filed writ petitions invoking the jurisdiction of the High Court under Arts. 226 and 227 of the constitution for prohibiting the authorities from taking proceedings for the enforcement of the orders dated October 12, 1955. The learned Judges allowed the petitions. The Income Tax Officer thereafter moved the High Court for certificates of fitness under Art. 133(l)(c) and these having been granted the appeals are now before us.

pp. 457–459

The ground upon which the learned Judges granted• the relief to the respondents was briefly this : The order of assessment had proceeded on the basis that the firm of Mafatlal Gagalbhai & Sons was the shareholder who had bet>n in receipt of the dividend-income and the individual partners of the firm had been made liable for their share of the profits derived from th;s registered firm. In such circumstances the learned Judges held that what was distributed to the individual ·partners could not be deemed to bn dividend-income within s. 16(2) of the Income Tax Act. It is to test the correctness of this construction of s. 16(2) that these appeals have been preforred.

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In our opinion, however the appeals have to be dismissed· on a short ground which does not involve any consideration of the correctness of the constrqction adopted by the Hi$h Coqrt, of s.16(2)

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of the Income Tax Act. This Court has held in Messrs. Howrah Trading Co., Ltd. v. '!'he Commissioner of Income-1'm: Calwtta ( that it is only the registered shareholder who is entitled to the benefit of the cr•)dit for tax paid by the co!upany under s. 18(5) ae well as the corresponding grossing up under s. 16( 2). On that basis the only p~rsons who were entitled to ho treated as shareholders to whom the provisions of ss. 16(2) and 18(1) of the Income Tax Act wore attracted W('re the three partnern in whose names thP 40 shares stood registered, as detailed <'Airlier. An error had therf'fore been committed by the Ineome Tax Offieer in treating the registered firm as the owner of the shares in respect of the entire number of •IO shares. It was not this initial and fundamental error th:it was sought to be r<'ctified by tho proceedings under s. 35, hut. tho removal of an ,inomaly in that error which continued to be affirmed; in other words the object of the proceedings under s. ;15 was t•> carry out to its logical con· clusion the error which had been committed in the order of assesRment dated October 12, l!J55 paBRed after invoking the provisions of s. 34. We consider the submission of leiirned Counsel for th?: respondents that the Income Tax Officer had jurisdiction under s. 3.) to rectify errors hut not to effect merely readjustments so as to avoid illogicalities in an error wlii~h is still permitted to continue is wellfounded.

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It has furthl'r to be mentioned that it is not possible to correct the initial error in these proceedings because the notice under s. 3 3 w)lich is the foundation of tho jurisdiction of the officer to effect the rectification, sou!!ht in realitv not t.he correction of the (•rror but the 1>erpotuation of it though in an altered a11<l less nhjeetionable form from the point of view of Revenue. In thi~ connection it would ho noticccl Lh:it one of th" four partners-¥ oginder l\fafatle.1 had no shares standing in his name and br s.c.R. the order of 'tSsessment under s. 34 he had been saddled with a liability to the extent of his 3/16th share •in the firm, though this has been partially offset by the credit given to him, obviously wrongly, of relief under s. 18(5) of the tax deemed to have been paid by the company on that incomes.

pp. 460–461

We therefore consider that the appeals must fail. They are accordingly dismissed but in the circumstances of this case there will be no order as to costs.

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Appeals dismissed. KANJI MANJI

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v. THE TRUSTEES OF THE PORT OF BOMBAY (S. K. M. and J. c. JJ.)

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Ejectment-Suit by Government or local Authority against assignees of leased land and building-Applicability of Rent Act-Jurisdiction of City Civil Court-Joint tenancy-Notice on one tenant, if sufficient-Suit if bad for non-joinder of legal representative of the deceased joint tenant-Assignee of tenancy if bound by the terms of the original lease-Where eviction of sub-tenant not possib/,e under statute, whether a ground to defeat the rights of the Local Authorities-Bombay Rents. Hotel and Lodging Houses Rates (Control) Act, 1947 (Bom. 57 of 1947), 5( 15.

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In 1924, the Trustees of Port of Bombay granted a lease of land for ten years to a partnership firm, with the covenant said land, certain buildings to the specifications of the trustees. It was provided inter alia that the lessee would be at liberty to remove the buildings, erected by them, within three months after the expiration of the term. It is not clear what happened actually after the expiration of the term of ten years. In 1942, the Trustees granted to M/s. D and 0 their monthly tenancy of the land together with the buildings standing thereon. It was agreed with them that on the

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