TMI Blog1959 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. - 65 OF 1956 - - - Dated:- 26-3-1959 - SINHA, KAPUR AND HIDAYATULLAH, JJ. N.C. Chatterjee and B.P. Maheshwari for the Appellant. K.N. Rajagopal Sastri, R.H. Dhebar and D. Gupta for the Respondent. JUDGEMENT Hidayatullah, J. Messrs. Howrah Trading Company, Ltd., Calcutta (hereinafter called the assessee), obtained on April 28, 1955, a certificate under section 66A(2) of the Indian Income-tax Act from the Calcutta High Court to appeal to this court against the judgment dated August 31, 1954, in Income-tax Reference No. 57 of 1953. The Divisional Bench (Chakravartti C.J. and Lahiri J.) in the judgment under appeal merely followed their earlier judgment delivered the same day in Income-tax Reference No. 22 of 1953, since reported as Hindustan Investment Corporation v. Commissioner of Income-tax [1955] 27 ITR 202 . It is the latter judgment which gives the reasons for the decision. The facts of the case have been stated with sufficient fulness, yet briefly, in the statement of the case submitted by the Income-tax Appellate Tribunal (Calcutta Bench) and may be conveniently set out in its own words : "The applicant had received sums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend : (proviso omitted). 18. (5) Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as a payment of income-tax or super-tax on behalf.......of the shareholder.........and credit shall be given to him therefor on the production of the certificate furnished under............section 20,......in the assessment, if any, made for the following year under this Act : (proviso omitted). 49B. (1) Where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any of the persons specified in section 3 who is a shareholder of a company which is assessed to income-tax in the taxable territories or elsewhere, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub-section (2) of section 16." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the tax previously paid by the company; and in that case the payment by the company operates in relief of the shareholder. But no agency, properly so called, is involved." The shareholders, however, get the benefit of the payment of the tax by the company. Though under section 16(2) of the Act their dividend is increased by a proportionate amount of tax paid by the company, the payment of the tax by the company is deemed under sections 18(5) and 49B(1) to be payment by the shareholders. The rates of income tax applicable to the company are, in most instances, higher than the rates applicable to the individual shareholders, and by this process of "grossing up", as it is commonly called, the recipient of the dividend gets some benefit. The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever. But transfers of shares are common, and they take place either by a fully executed document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as 'blank transfers.' In such blank transfers, the name of the transferor is entered, and the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare" denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members. A similar view of the Companies Clauses Consolidation Act, 1845, was taken in Nanney v. Morgan [1888] 37 Ch. D. 346, 356 . The learned Lords Justices held that under section 15 of that Act, the transferee had not the benefit of a legal title till certain things were done, which were indicated by Lopes L.J. in the following passage : "Therefore the transferor, until the delivery of the deed of transfer to the secretary, is subject to all the liabilities and entitled to all the rights which belong to a shareholder or stockholder, and, in my opinion, until the requisite formalities are complied with, he continues the legal proprietor of the stock or shares subject to that proprietorship being divested, which it may be at any moment, by a compliance with the requisite formalities." The same position obtains in India, though the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made. See Nagabushanam v. Ramachandra Rao [1922] ILR 45 Mad. 537 . D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of the company, whose name is on the register of members. Authorities on this point are not wanting, and indeed, in the judgment of the Calcutta High Court they have all been referred to. They are all against the assessee. See Shree Shakti Mills Ltd. v. Commissioner of Income-tax [1948] 16 ITR 187 , Jaluram Bhikulal v. Commissioner of Income-tax [1952] 22 ITR 490 , Arvind N. Mafatlal v. Income-tax Officer [1957] 32 ITR 350, and Bikaner Trading Co. v. Commissioner of Income-tax [1953] 24 ITR 419. The question that falls for consideration is whether the meaning given to the expression "shareholder" used in section 18(5) of the Act by these cases is correct. No valid reason exists why "shareholder" as used in section 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. In In re Wala Wynaad Indian Gold Mining Company [1882] 21 Ch. D. 849, 854, Chitty J. observed : "I use now myself the term which is common in the courts, 'a shareholder,' that means the holder of the shares. It is the common term used, and only means the person who holds the shares by having his name on the register." Learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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