TMI Blog1966 (2) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... xed in respect of dividend received by them. There is no provision in the Act which supports this plea, and the scheme of the Act lends no countenance to an expedient which may lead to gross evasion of tax. Appeal dismissed. - - - - - Dated:- 10-2-1966 - Judge(s) : V. RAMASWAMY., P. B. GAJENDRAGADKAR., K. N. WANCHOO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.--Kishanchand Bajaj and his seven sons formed a Hindu undivided family which owned shares exceeding Rs. 91,000 in value, in public limited companies. The family commenced business in money-lending and as commission agents on May 16, 1956, in the name of Messrs. Mangoomal Kishanchand and in the books of account of the firm the shares which stood registered in the name of Kishanchand with the companies were credited as capital of the business. On August 22, 1956, Shyam Sundar and Girdharlal, two of the sons of Kishanchand, separated from the family, each receiving rupees two lakhs in lieu of his share. On August 23, 1956, a partnership was formed between Kishanchand representing the Hindu undivided family of himself and his five sons and Shyam Sundar and Girdharlal, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this contention was placed upon section 16(2) of the Indian Income-tax Act, 1922, and certain observations made by this court in the judgment in Howrah Trading Company Ltd. v. Commissioner of Income-tax. In our judgment the contention is wholly without substance. Under section 3, total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually is charged to tax. By section 4 the total income of any previous year of any person includes, subject to the provisions of the Act, all income, profits and gains from whatever source derived, which are received or deemed to be received in the taxable territories in such year by or on behalf of such person, or if such person is resident in the taxable territories during such year the income which accrue or arise or is deemed to accrue or arise to him in the taxable territories during such year, or accrue or arise without the taxable territory during such year, or having accrued or arisen to him without the taxable territories are brought into the taxable territories duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year : Provided.... (c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor : Provided.... (2) For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the company (without taking into account any rebate allowed or additional income-tax charged) for the financial year in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend : Provided.... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax deemed to have been paid by the company on behalf of the shareholder. The sub-section in the first instance designates the year in which the dividend income is to be included in the total income. Therefore dividend will be included in the income of the assessee in the year in which it is paid, credited or distributed, or be deemed to be paid, credited or distributed. Since the same income cannot be taxed twice over, dividend income will be taxed in the hands of the real owner of the shares and in the year designated by section 16(2). But by virtue of the second part of section 16(2), dividend may be grossed up only if the registered shareholder is the real owner of the shares. If the registered holder is not the real owner of the shares, i.e., he is a trustee or benamidar for the real owner, dividend income cannot be grossed up when including it in the total income of the real owner. But sub-section (2) of section 16 does not operate as an exemption from the pale of either section 3 or section 4(1) of the Act : nor does it provide that liability to tax arises only when the person by whom dividend is received from the company is the real owner of the shares. Sub-section (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to treat the dividend from the shares as income of the firm and to " gross up " the dividend by adding the income-tax paid. This court held that the only persons who were entitled to be treated as shareholders to whom the provisions of sections 16(2) and 18(5) were attracted were the three partners. The judgment of this court in Commissioner of Income-tax v. Shakuntala does not support any different rule. That was a case in which a Hindu undivided family held certain shares in a company in the names of different members of the family. The Income-tax Officer applied the provisions of section 23-A of the Indian Income-tax Act, 1922, before it was amended in 1955, and ordered that the undistributed portion of the distributable income of the company shall be deemed to be distributed. In proceedings for assessment the amount of deemed income appropriate to the shares of the family was ordered by the Income-tax Officer to be included in the income of the family. It was held that the expression " shareholder " in section 23A of the Indian Income-tax Act meant the shareholder registered in the books of the company. Therefore, the amount appropriate to the shares had to be included in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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