TMI Blog1946 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ts accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, (reduced as therein mentioned), he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes (reduced as therein mentioned) shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income. Only a brief reference need be made to the facts. The company in whose share capital these 1,245 shares stand, is a private limited company with a total share of 2,500 shares of ₹ 100 each, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where a share stands registered in two or more names, it is the registered holders, regarded as an association of persons, who must in my opinion be regarded as the shareholder and who must be assessed accordingly. Section 21 of the Indian Companies Act is the section which makes the memorandum and articles of association of a company the contract between the company and its shareholders and it is as follows:- The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member, his heirs, and legal representatives, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act. The only relevant articles of the articles of association of this company, with whose undistributed profits this case is concerned, are Articles 106 and 171. Article 106 provides:- Where there are joint registered holders of any share any one of such persons may vote at any meeting either personally or by proxy in respect of such shares as if he were solely entitled thereto, and if more than one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Within the terms of that section this artificial income is to be deemed to have been distributed, in this case to the assessee and his wife as the registered holders of the shares. We are not dealing with anything concrete as no distribution has in fact taken place and no shareholder has in fact received any income. Who will ultimately receive these undistributed profits of the company cannot now be predicted, it may depend on survivorship. The section says nothing about equities or beneficial ownership, and nothing would have been easier, if the legislature had so intended, (sic) to have provided that the undistributed income of the company should be deemed to be the income of the persons who would be entitled to it beneficially if it had in fact been distributed on the specified date. Accordingly, in my opinion, question No. 2 should be answered in the affirmative. It is the joint holders, viz., the assessee and his wife who are assessable to tax. Taking that view of the matter, question No. 1 does not arise. In my opinion the Commissioner must pay the costs. Chagla, J.-I agree. Section 23A deals with the power to assess individual members of certain companies and it pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, it is perfectly clear that under the terms of Section 23A it is only the shareholder who is assessable and no one else. In this case the assessee is not the shareholder. The shareholders are the assessee and his wife. They are the joint shareholders and within the meaning of Section 23A they constitute the shareholder who is to be assessed in respect of this income. Now, with great respect to the Tribunal, I fail to find any warrant or authority for the proposition that the term shareholder in Section 23A(1) means any one of the joint shareholders who for the company's purpose is regarded as the shareholder. Both the assessee and his wife are on the register of the company as the joint shareholders and I fail to understand how the fact that the company may for the purpose of convenience agree to permit one or the other to exercise some of the rights of the shareholder can affect the question as to who is the shareholder for the purposes of Section 23A of the Act. In this connection it is material to refer also to Section 16 of the Act. That also is a computing section and sub-clause (3) provides that in computing the total income of any individual for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined. Therefore in the case of an individual partner, in his total assessment is to be included his share in the income, profits and gains of the partnership. There was nothing to preclude the taxing authorities from determining what the real share of the individual partner was in the income, profits and gains of the previous year. Although the partnership deed stated that his real share was only 6 as. 8 ps., the taxing authorities came to the conclusion that in fact the real share was 10 as. 8 ps. The learned Chief Justice held in his judgment that the taxing authorities were not estopped by Section 26A and Mr. Justice Kania decided the case on another ground, viz., that Section 23(5)(a) did not provide in terms for the assessment of the partners in their names according to the instrument registered with the Income-tax Office. There is, it need hardly be pointed out, nothing man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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