The judgment of the court was delivered by

AYYANGAR J.--These four appeals are pursuant to certificates granted by the High Court of Bombay under article 133(1)(c) of the Constitution and raise identical questions for consideration.

The respondents in these four appeals are each of the four partners in a firm constituted under the name of Mafatlal Gagalbhai and Sons and which was composed of Navinchandra Mafatlal, Arvind N. Mafatlal, Yoginder N. Mafatlal and Hemant 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. 502 of 1959, 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, ten in the name of Arvind and twenty in the name of Hemant. For the account year of the company ending September 30, 1945, the company disclosed a net profit of Rs. 1,09,165. The company, however, did not declare any dividend out of these 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 section 34 of the Indian Income-tax Act and acting under the provisions of section 23A thereof directed that the undistributed assessable income of the company which amounted to Rs. 68,228 should be deemed to have been distributed as dividend among the shareholders as on the date of the general body meeting of the company (i.e., on March 11, 1946). Before the date of this order the assessment of the firm of Mafatlal Gagalbhai and Sons and the individual assessment of its four partners had been completed. In order to bring to tax the undistributed dividend " deemed to be declared " under section 23A among the shareholders of the company notices were issued to the four partners under section 34 of the Income-tax Act. In response to the notice the partners appeared and it was stated in their behalf that the forty shares held by three of the partners in the company were in fact the property of the registered firm and were held by them benami for the firm. This contention was accepted by the Income-tax Officer who thereupon treated the dividend attributable to the forty shares as the dividend income of the firm and proceeded to apportion the said income among the four partners in the proportion of the shares which each of them held in the firm and add this to the income already assessed. In doing so, however, the Income-tax Officer committed an error. In recomputing the total income of each of these four assessees he included only the net dividend " deemed to be received " by each but as against this addition he allowed a deduction of the tax paid by the company attributable to such dividend. There was no appeal against these assessment orders which became final. Subsequently this mistake was discovered and thereupon the Income-tax Officer issued notices to the four partners on April 13, 1954, pointing out the error in including in the income the net dividend without being grossed up, while at the same time allowing credit for the tax deemed to have been paid thereon. He averred that this was a mistake apparent from the records and stated that he intended to rectify the same under section 35 of the Income-tax Act. The four assessees objected to the rectification, but almost the entirety of the grounds on which the objection was 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 dividend income by the addition of the tax deemed to have been paid by the company thereon and retained the original relief granted under section 18(5) of the Act. After unsuccessfully appealing to the higher authorities for relief against this rectification the assessees filed writ petitions invoking the jurisdiction of the High Court under articles 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 article 133(1)(c) and these having been granted the appeals are now before us.

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 and Sons was the shareholder who had been 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 this registered firm. In such circumstances the learned judges held that what was distributed to the individual partners could not be deemed to be dividend income within section 16(2) of the Income-tax Act. It is to test the correctness of this construction of section 16(2) that these appeals have been preferred.

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 construction adopted by the High Court of section 16(2) of the Income-tax Act. This court has held in Messrs. Howrah Trading Co., Ltd. v. Commissioner of Income-tax, that it is only the registered shareholder who is entitled to the benefit of the credit for tax paid by the company under section 18(5) as well as the corresponding grossing up under section 16(2). On that basis the only persons who were entitled to be treated as shareholders to whom the provisions of sections 16(2) and i8(5) of the Income-tax Act were attracted were the three partners in whose names the forty shares stood registered, as detailed earlier. An error had therefore been committed by the Income-tax Officer in treating the registered firm as the owner of the shares in respect of the entire number of 40 shares. It was not this initial and fundamental error that was sought to be rectified by the proceedings under section 35 ; but the removal of an anomaly in that error which continued to be affirmed ; in other words the object of the proceedings under section 35 was to carry out to its logical conclusion the error which had been committed in the order of assessment dated October 12, 1955, passed after invoking the provisions of section 34. We consider the submission of learned counsel for the respondents that the Income-tax Officer had jurisdiction under section 35 to rectify errors but not to effect merely readjustments so as to avoid illogicalities in an error which is still permitted to continue is well founded.

It has further to be mentioned that it is not possible to correct the initial error in these proceedings because the notice under section 35 which is the foundation of the jurisdiction of the officer to effect the rectification, sought in reality not the correction of the error but the perpetuation of it though in an altered and less objectionable form from the point of view of revenue. In this connection it would be noticed that one of the four partners, Yoginder Mafatlal, had no shares standing in his name and by the order of assessment under section 34 he had been saddled with a liability to the extent of his 3/16th share in the firm, though this has been partially off-set by the credit given to him, obviously wrongly, of relief under section 18(5) of the tax deemed to have been paid by the company on that income.

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.

Appeal dismissed.