ivil Appeal No 65 of 1956
Appeal from the judgment and order dated August 31 1954 of the Calcutta High Court in Income tax Ref
No 57 of 1953
N C Chatterjee and B P Maheshwari for the appellant
K N Rajagopala Sastri R H Dhebar and D Gupta for the respondent
March 26
The Judgment of the Court was delivered by HIDAYATULLAH J
Messrs
Howrah Trading Company Ltd Calcutta hereinafter called the assessee obtained on April 28 1955 a certificate under section 66A2 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 Chakravarti 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 vs Commissioner of Income tax 1
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 1 57 450  The applicant had received sums of Rs 3831 Rs 6606 Rs 7954 and Rs 8304 in the four assessment years 1944 45 1945 46 1946 47 and 1947 48 as income from dividends
The shares in respect of which this dividend income was received were the property of the Applicant but in the books of the various companies these stood in the names of other persons
It appears that these shares were purchased by the Applicant from other persons under a blank transfer but the transfers had not been registered with the various companies
The Applicant s claim in these income tax proceedings was that these shares although not registered in the name of the applicant were the property of the applicant
It was further claimed that this dividend income should be grossed up under section 162 and credit for the tax deducted should be allowed to the Applicant under section 185
 The Income tax Officer did not accept this claim and the appeals of the assessee were rejected by the Appellate Assistant Commissioner of Income tax Calcutta  A  Range and by the Appellate Tribunal
The Tribunal however on being moved referred the following question to the High Court  Whether in the facts and circumstances of this case the Applicant the assessee was entitled to have this dividend income grossed up under section 162 and claim credit for tax deducted at source under section 185 of the Income tax Act  The High Court answered the question in the negative thus affirming the decisions of the Department and the Appellate Tribunal
The assessee contends that the decision of the High Court is erroneous and that it is entitled to have the dividend income I grossed up  under section 162 and also to claim credit for tax deducted at source under s185 of the Income tax Act
The relevant sections are as follows  162  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 451 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 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 incometax 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
49B1 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
 It was contended in the High Court that inasmuch as section 162 referred to an I assessee the assessee company was entitled to have the dividend grossed up  by the addition of income tax paid by the various companies at source and consequently to have the benefit of the credit allowed under the two remaining sections
In the opinion of the High Court an assessee whose name was not in the register of members of the companies was not entitled to the benefit of these provisions
The learned Judges of the High Court were of the opinion that the word  shareholder  in 452 s185 had the same signification as the word  member  used in the Indian Companies Act and that the assessee was not qualified to be considered as a shareholder even though by a blank transfer it had purchased the relevant shares
In our opinion the High Court was right in its conclusion
A company when it pays income tax does not do so on behalf of the shareholders
It is itself chargeable under the Act In Cull vs Inland Revenue Commissioners 1 Lord Atkin stated the law which in substance is also the law in our country thus My Lords it is now clearly established that in the case of a limited company the company itself is chargeable to tax on its profits and that it pays tax in discharge of its own liability and not as agent for its shareholders 
At one time it was thought that the company in paying tax paid on behalf of the shareholder but this theory is now exploded by decisions in this House and the position of the shareholders as to tax is as I have stated it
 When the company pays its own income tax and declares a dividend from the balance of its profits it deducts from such dividend a proportionate part of the amount of the tax paid by it
This principle is explained in another English case and it is substantially also the law in this country
In Inland Revenue Commissioners vs Blott 2 Viscount Cave stated the law in these words  Plainly a company paying income tax on its profits does not pay it as agent for its shareholders
It pays as a tax payer and if no dividend is declared the shareholders have no direct concern in the payment
If a dividend is declared the company is entitled to deduct from such dividend a proportionate part of the amount 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 share holders however get the benefit of the payment of the tax by the company
Though under 1  56   636
2  201
453 s162 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 tinder sections 185 and 49B1 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 deed signed by the transferor is handed over with the share scrip to the trans feree who if he so chooses completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share
The company recognises no person except one whose name is on the register of members upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable
Of course between the transferor and the transferee certain equities arise even on the execution and handing over of a blank transfer  and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee
These equities however do not touch the company and no claim by the transferee whose name is not in the register of members can be made against the company if the tranferor retains the money in his own hands and fails to pay it to him
A glance at the scheme of the Indian Companies Act 1913 shows that the words  member   shareholder  and  holder of a share  have been used interchangeably in that Act
Indeed the opinion of most of the writers on the subject is also the same
454 Buckley on the Companies Act 12th Edition page 803 has pointed out that the right of a transferee is only to call upon the company to register his name and no more
No rights arise till such registration takes place
Section 216 of the Indian Companies Act 1913 defines  share  as  share in the share capital of the company Section 5 deals with the mode of forming incorporated companies and in the case of companies limited by shares the liability of the members is limited to the amounts if any unpaid on the shares respectively held by them
By section 18 Table A is made applicable to companies unless by the Articles of any company the terms of Table A have been excluded or modified
Regulation 18 of Table A reads as follows  The instrument of transfer of any share in the company shall be executed both by the transferor and transferee and the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of members in respect thereof
 The words  holder of a share  are really equal to the word shareholder and the expression  holder of a share 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 vs Morgan1
The learned Lord Justices held that under section 15 of that Act the transferee bad not the benefit of a legal title till certain things were done which were indicated by Lopes LJ 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
1  356
455 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 vs Ramachandra Rao 1
During the period that the transfer exists between the transferor and the transferee without emerging as a binding document upon the company equities exist between them but not between the transferee and the company
The transferee can call upon the transferor to attend the meeting vote according to his directions sign documents in relation to the issuance of fresh capital call for emergent meetings and inter alia also compel the transferor to pay such dividend as he may have received
See E D Sassoon  Co Ltd vs Patch 2 approved in Mathalone vs Bombay Life Assurance Co Ltd 3 
But these rights though they no doubt clothe the transferee with an equitable ownership  are not sufficient to make the transferee a full owner since the legal interest vis a vis the company still outstands in the transferor so much so that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital which may be needed
The cases in Black vs Homersham 4 or Wimbush In re Richards vs Wimbush 5 hardly advance the matter further than this
The position therefore under the Indian Com panies Act 1913 is quite clear that the expression  shareholder  or  holder of a share  in so far as that Act is concerned denotes no other person except a  member 
The question that arises in the present case is whether by reason of sections 162 and 185 the assessee who was a transferee on a blank transfer  is entitled to the benefits of the grossing up of the dividend income
Learned counsel for the assessee strenuously contends that the assessee being an owner in equity of the shares and thus also of the dividend is entitled to this benefit
He refers to the use of the word I assessee in section 162
The Department on the 1 Mad 537
3  2 4 1878 79 L R 5 456 other hand says that the dividend can be increased under section 162 and credit allowed under section 185 if the assessee is a shareholder  because the benefit of section 185 can go only to the shareholder i e a person with his name on the register of members and not to a person holding an equity against such shareholder
The assessee contends that the word  shareholder  includes even a person who holds a share as a result of a blank transfer and does not necessarily mean a member 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 vs Commissioner of Income tax 1 Jaluram Bhikulal vs Commissioner of Income tax 2 Arvind N Mafatlal vs Incometax Officer 3 and Bikaner Trading Co vs Commissioner of Income tax 4
The question that falls for consideration is whether the meaning given to the expression shareholder used in section 185 of the Act by these cases is correct
No valid reason exists why  shareholder  as used in section 185 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 5 Chitty J observed  I use now myself the term which is common in the Courts I 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 for the assessee cited a number of authorities in which the ownership of the dividend was in question and it was held that the transferee whose name was not registered was entitled to the dividend after transfer had been made
These cases are Commissioners of Inland Revenue vs Sir John Oakley 6 Spence vs Commissioners of Inland Revenue 7 1 3 5  854
2 4 6  7 457 and others cited at page 367 in Multipar Syndicate Ltd vs Devitt 1
No one can doubt the correctness of the proposition in these cases but from an equitable right to compel the transferor to give up the dividend to the transferee to a claim to the dividend by him as a  shareholder  against the company is a wide jump
In so far as the company is concerned it does not even issue the certificate under section 20 of the Income tax Act in the name of an unregistered transferee but only in the name of the transferor whom it recognises because his name is borne on its books
Section 20 lays down  The principal officer of every company shall at the time of distribution of dividends furnish to every person receiving a dividend a certificate to the effect that the company has paid or will pay income tax on the profits which are being distributed and specifying such other particulars as may be prescribed
 The meaning of section 20 as also of section 185 is clear if they are read with section 19A under which information regarding dividends has to be supplied by the company when demanded by the Income tax Officer
It lays down  The principal officer of every company  shall on or before the 15th day of June in each year furnish to the prescribed officer a return in the prescribed form and verified in the prescribed manner of the names and of the addresses as entered in the register of shareholders maintained by the company of the shareholders to whom a dividend or aggregate dividends exceeding Such amount as may be prescribed in this behalf has or have been distributed during the preceding year and of the amount so distributed to each such shareholder  Italics supplied
Section 19A makes it clear if any doubt existed that by the term  shareholder  is meant the person whose name and address are entered in the register of  shareholders  maintained by the company
There is but one register maintained by the Company
There 1 58 458 is no separate register of  shareholders  such as the assessee claims to be but only a register of  members 
This takes us immediately to the register of members and demonstrates that even for the purpose of the Indian Income tax Act the words member and  shareholder  can be read as synonymous
The words of section 185 must accordingly be read in the light in which the word  shareholder  has been used in the subsequent sections and read in that manner the present assessee notwithstanding the equitable right to the dividend was not entitled to be regarded as a shareholder for the purpose of section 185 of the Act
That benefit can only go to the person who both in law and in equity is to be regarded as the owner of the shares and between whom and the company exists the bond of membership and ownership of a share in the share capital of the company
In view of this we are satisfied that the answer given by the Calcutta High Court on the question posed by the Tribunal was correct
The appeal fails and is dismissed with costs
Appeal dismissed


Summary:
The Public Works Department of Government of Haryana consists of three wings viz Irrigation Roads and Buildings and The Engineering Service in the Irrigation Branch comprises both Class I service consisting of Assistant Executive Engineers Executive Engineers and Superintending Engineers and Class II service including Assistant Engineers
While the Assistant Executive Engineers are recruited by direct recruitment only the Executive Engineers are recruited by i direct recruitment ii by transfer iii by promotion from Class II service
 The cadre strength of Assistant Engineers fixed under tie Rules is very large 354 as compared to the cadre strength of Assistant Executive Engineers
For the purposes of promotion to Executive Engineers both Assistant Executive Engineers and Assistant Engineers are eligible for which inter se quota is fixed under the Rules
The Haryana Public Service Commission issued a notification in 1985 inviting applications for selection to the posts of Assistant Executive Engineers for all the three wings of the PWD
Although the requisition from the Government was to select Assistant Executive Engineers only for two wings viz Public Health and Buildings and Roads yet the Commission notified the vacancies with respect to Irrigation Branch also stating that posts in the said category are also likely to be filled from the suitable candidates from this very advertisement after the receipt of demand from the Government
On the basis of written test and interview selections were made for Public Health and Buildings and Roads wings but no selections were made for the Irrigation wing because even by the date of finalisation of selections no requisition or demand had come from the Government
The appellants who were not selected filed writ petitions in the Punjab and Haryana High Court for a direction to respondents to fill up vacancies of Assistant Executive Engineers and others falling to the quota of direct recruits from amongst the applicants who had applied in pursuance to the advertisement and for a further direction to the State of Haryana to send requisition to the Commission to fill up all vacancies which are meant for direct recruits
The High Court dimissed all the petitions
In appeals to this Court it was contended on behalf of the appellants that 1 the Government acted arbitrarily in not sending the requisition inspite of the fact that vacancies in Irrigation Branch existed for a number of years 2 when the rules created a particular category and the cadre strength was also fixed therefor and more particularly when a quota was reserved for them in the channel of promotion to the category of Executive Engineers it was not open to the Government to nullify the spirit and object behind the Rules by refusing to make appointment to the said category  3 the procedure adopted by the Haryana Public Service Com mission was contrary to Rules because under the Rules a candidate obtaining 50 per cent marks in the written test is entitled to be called for viva voce but the Commission arbitrarily prescribed a threshold of 65 per 355 cent which resulted in denial of opportunity of selection to the appellants
The stand taken by the Government of Haryana was that the decision not to send requisition for filling up the vacant posts of Assistant Executive Engineers in Irrigation Branch was bona fide and actuated by relevant considerations because a large number of Assistant Engineers who can be posted only as Sub Divisional OfficersSub Divisional En gineers are in surplus over and above the cadre strength and if the Assistant Executive Engineers are also appointed as demanded by the appellants they will be in further surplus inasmuch as they too can be posted only as Sub Divisional OfficersSub Divisional Engineers
Allowing the appeals in part this Court HELD1
The Public service commission had no authority to include the vacancies in the Irrigation Branch in the notification issued by it when the Government had not asked for it
May be the Commission did so bona fide
Even so the fact remains that none were selected against the vacancies in the Irrigation Branch evidently because no demandrequisition ever arrived from the Government
Indeed it is not as if the appellants appeared only for the vacancies in Irrigation Branch
It was a composite notification for all the three wings
The appellants do not say that they confined their applications to Irrigation wing alone
nose selected for the other two wings had admittedly scored more marks at the selection
Therefore the mere appearance at the selection does not clothe them with the right to selection or appointment
366G H 367A C State of Haryana vs Subhash Chandra Marwaha 1974 3 SCC 220 and LJ
Divakar vs Government of Andhra Pradesh AIR  relied on
Where the Rules have created a particular category fixed its cadre strength and have also prescribed a quota for such categroy in the matter of promotion to the higher category the Government would not be justified in not making appointments to such category for over a decade unless there are very strong and good reasons therefor
The Government would not be justified in nullifying though not in word but in spirit the Rules in this manner
367C D 21
There is no reason why the Government did not think it fit to 356 make some ad hoc
appointments to the category of Assistant Executive Engineers when it was recruiting such a large number on ad hoc basis to the category of Assistant Engineers
At the same time the Courts have to think twice before adding the numbers to the already over loaded service
It is not so much a question of punishing  the errant but one of what to do with the surplus personnel and the consequent unwarranted burden upon the public exchequer
On balancing the contending rights and equities the Court is of the opinion that at least part of the cadre strength of Assistant Executive Engineers in the Irrigation Branch should be riled up in the near future
367E G 3
The selection held in which the appellants had appeared cannot be directed to be finalised
The only direction that can properly be made herein is to direct the Government to take steps for filling up the vacancies existing in the category of Assistant Executive Engineers in the Irrigation Branch as early as possible
Atleast half the vacancies therein should be filed within a period of one year from today
367H 368A B IJ Divakar vs Government of Andhra Pradesh AIR 1982 SC 1555 distinguished
A reading of the first proviso to Sub
Rule 2 of Rule 7 shows that it prescribes a minimum percentage of marks in the written test both for appointment as well as for being called for interview viva voce
It does not create a right in the candidate who has obtained the prescribed percentage of marks to be called for interview
363A Ashok Kumar Yadav vs State of Haryana AIR 1987 SC 454 relied On
Umesh Chandra vs Union of India   Nilima Shangla vs State of Haryana  and PK Ramachandra Iyer  Ors
vs Union of India  Ors
   referred to