TMI Blog1977 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... hare warrants. In the previous year relevant to assessment year 1962-63, the assessee received a net dividend of Rs. 3,150 after deduction of tax of Rs. 1,350 from the company in respect of the said share warrants. In making the assessment on the assessee, the ITO refused to give any credit for the tax deducted at source and he straightaway taxed the net dividend of Rs. 3,150. According to him, the assessee was not entitled to the credit for the tax deducted at source because she was not registered in the books of the company as the owner of those shares and hence she could not be treated as the shareholder for the purpose of getting credit for the tax deducted at source under section 199 of the Act. He relied upon the decision of the Supreme Court in Howrah Trading Co. Ltd. v. C1T [1959] 36 ITR 215. The assessee preferred an appeal to the AAC, who did not accept the view of the ITO. The AAC took the view that the ratio of the Supreme Court decision in Howrah Trading Co.'s case [1959] 36 ITR 215 was not applicable, inasmuch as, in the instant case before him, there was no question of any dual ownership of shares in question, there was no conflict between the legal ownership a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles of association, viz ., articles 52 to 55 of the company, came to the conclusion that the holder of the share warrants could be regarded as a shareholder for the purposes of sections 194 and 199 of the Act. In this behalf, the Tribunal pointed out that under the relevant provisions of the Companies Act as well as the articles of association of the company the bearer or holder of a share warrant was entitled to receive the dividend and was entitled to all the privileges and advantages which the shareholder has except those specifically mentioned in the articles and such holder of share warrant will have to be treated as if he was a shareholder of the company and as such the assessee would be entitled to the credit for the tax deducted at source. Alternatively, the Tribunal considered the question as to whether she could be eligible for the credit under the provisions of section 237 of the Act even if it were assumed for the purpose of argument that as a holder of share warrants she could not be regarded as a shareholder and the Tribunal took the view that in the instant case the identity of the holder of the share warrants as being the person to whom the dividend was payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of its register of members the name of the member then entered therein as holding the shares specified in the warrant as if he had ceased to be a member. He, therefore, urged that since the assessee in the instant case was merely a holder of share warrants in question, she could not be regarded as either a member or a shareholder of the company. According to Mr. Joshi, the expression "shareholder" occurring in section 18(5) read with section 16(2) of the 1922 Act (equivalent to section 199 of 1961 Act) has been interpreted, and construed by the Supreme Court as being referable to a registered shareholder whose name has been entered or appears in the register of members maintained by the company. S. 194 of the Act speaks of deduction of tax being made at source by the company or the principal officer before making distribution or payment of dividend to a shareholder and section 199 of the Act speaks of credit being given to the shareholder in respect of such deduction of tax at source made by the company or its principal officer and, according to Mr. Joshi, the Supreme Court in Howrah Trading Co.'s case [1959] 36 ITR 215 has (with reference to corresponding provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such excepted cases would be only those cases which had been prescribed by rules, and he pointed out that r. 30A, which has been framed in that behalf, enumerates several types of cases which would fall under clause ( ii ) of the provision to section 199, but the case of a holder of share warrant is not one of the cases specified in r. 30A. He urged that the absence of a case of holder of share warrant in r. 30A should be taken to be the evidence of legislative intent on the part of Parliament that in the case of holder of a share warrant the benefit under section 199 should not be available. On the other hand, Mr. Dwarkadas appearing for the assessee contended that if the provisions of sections 114 and 115 of the Companies Act, particularly sub-section (5) of section 115, along with the relevant articles of association of the company, particularly article 55, were carefully scrutinised, it will appear clear that for all purposes, except certain matters which have been specifically mentioned in article 55, the holder or bearer of a share warrant has been regarded by the company as if he is a member of the company and, therefore, there was no reason why the holder of a share warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of sections 114 and 115 of the Companies Act read with the relevant articles of the articles of association the assessee will have to be regarded as a shareholder within the meaning of section 199 of the Act and as such should be entitled to get credit for the tax deducted at source. Alternatively, he submitted that even if the assessee could not be regarded as a shareholder within the meaning of section 199 of the Act, she should be entitled to get similar credit under the provisions of section 237 of the Act. In order to decide the principal question that arises for our consideration as to whether the assessee could be regarded as a shareholder for the purpose of section 199 of the Act or not, it will be necessary to refer to the relevant provisions of the Companies Act as well as the articles of association of the company. At the outset it may be stated that the expression "shareholder" has not been defined under the Companies Act though the expression "share" has been defined and the expression "member" has also been defined. Section 2(27) defines the expression "member" thus : " 'member ', in relation to a company, does not include a bearer of a share warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact of the issue of the warrant; ( b )a statement of the shares specified in the warrant, distinguishing each share by its number ; and ( c )the date of the issue of the warrant. (2) The bearer of a share warrant shall, subject to the articles of the company, be entitled, on surrendering the warrant for cancellation and paying such fee to the company as the board of directors may from time to time determine, to have his name entered as a member in the register of members. (3) The company shall be responsible for any loss incurred by any person by reason of the company entering in its register of members the name of a bearer of a share warrant in respect of the shares therein specified, without the warrant being surrendered and cancelled. (4) Until the warrant is surrendered, the particulars specified in sub-section (1) shall be deemed to be the particulars requited by this Act to be entered in the register of members; and, on the surrender, the date of the surrender shall be entered in that register. (5) Subject to the provisions of this Act, the bearer of a share warrant may, if the articles of the company so provide, be deemed to be a member of the company withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upons or otherwise for payment of dividends or other moneys, on the shares included in the warrant. It then goes on to provide for striking out the name of the member from the register of members, etc. Article 53 deals with transfer of share warrant and it provides that a share warrant shall entitle the bearer to the shares included in it and the shares shall be transferred by the delivery of the share warrant and that the provisions of the regulations of the company with respect to transfer and transmission of shares shall not apply thereto; in other words, under article 53 the shares -specified in the share warrant become transferable by delivery of the share warrant. Article 54 deals with reconversion of share warrant into share certificate. Then comes article 55 which is most material and the last part of it, which is relevant runs thus: ".........................but the bearer of the share warrant shall be entitled in all other respects to the same privileges and advantages as if he were named in the Register of Members as the holder of the shares included in the warrant, and he shall be a member of the Company." This last portion of article 55 clearly suggests that in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect which will have a bearing on the question at issue and which has been mentioned by the Tribunal in its order and that aspect is that the appropriate amount of tax to be deducted varies between a resident and a non-resident and if the person holding a share warrant is a non-resident, then the tax will have to be deducted at a different rate ; in other words, the deduction of tax either on the basis of residential status or non-residential status of warrant holder must be decided by the company before the appropriate amount of tax is deducted at source and in the instant case the assessee's residential status must have been established before the company and after being satisfied about it the company must have deducted the tax at source in respect of shares specified in the share warrants which were so deposited ; in other words, the deduction of tax would be related not only to the quantum of dividend but also to the person entitled to it and in this sense also the payment of dividend would be made by the company only to the person who holds the shares in the company. Having regard to these aspects of the matter, it seems to us clear that the assessee who is the holder of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct (1961 Act) has been considered by the Supreme Court; this court as well as the Andhra Pradesh High-Court as being referable to a registered shareholder, that is to say, a holder of shares whose name has been registered in the register of "members of the company, in three or four decisions on which Mr. Joshi relied, but it must be pointed out that in each one of those cases the court was concerned with the conflict that had arisen between the legal ownership and the equitable ownership and it was in the context of such conflict the question had arisen whether the equitable owner of shares would also be entitled to the processing contemplated by section 18(5) read with section 16(2) of the old Act or by section 199 of the new Act; for instance the Supreme Court in Howrah Trading Co.'s case [1959] 36 ITR 215 was concerned with the question as to whether the purchaser or transferee of shares in whose name the shares had not yet been registered in the register of members of the company was entitled to the grossing up contemplated by section 18(5) read with section 16(2) of the Act or not. In terms it was a case where a person who had purchased shares in a company under a blank tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adas, we find that he is on a stronger ground. His alternative submission has been that eyen if it were assumed for the purpose of argument that the holder of a share warrant cannot be regarded as a shareholder within the meaning of section 199 for the purpose of claiming credit for the tax deducted at source, the assessee's case would fall within the purview of section 237, which deals with refund of excess tax, paid on behalf of the assessee. Section 237 runs thus: "237. Refunds. If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess." Now, irrespective of the question whether the assessee could be regarded as a shareholder or not in the sense of being a registered shareholder, it cannot be disputed that because she held shares in the company specified in the share warrants which were issued to her, the dividend became payable to her by the company and while paying the dividend which was due to her tax was deducted by the principal off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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