Case: Commissioner of Income Tax, Bombay City II Vs. Shakuntala &amp; Others

and 18 (5) of the Act. This view was accepted by this Court in Howrah Trading Co. Ltd. v. Commissioner of Income-tax, Central, Calcutta, 1959-36 ITR 215 : (AIR 1959 SC 775 ), where it said that no valid reason existed as to why the expression shareholder as used in S. 18 (5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. A reference was made to the decision of the Bombay High Court in 1948-16 ITR 187 : (AIR 1948 Bom 394 ) (supra) and other decisions bearing on the subject. Similarly, we see no reason why the expression shareholder in S. 23-A should not have the same meaning, namely, a shareholder registered in the books of company. It would be anomalous if the expression shareholder has one meaning in S. 18 (5) and a different meaning in S. 23-A of the Act; for that would mean that a Hindu undivided family treated as a shareholder for the purpose of S. 23-A would not be entitled to the benefit of S. 18 (5) of the Act.6. The learned counsel for the appellant has urged two points in support of his contention that the expression shareholder in S. 23-A means the person who owns the share, irrespective of the circumstance whether that person is registered in the books of the company as a shareholder or not. His first point is that the very object of the section is to prevent avoidance of super-tax by the shareholders of a company, and if the beneficial owner of the shares is a Hindu undivided family, that family will not come within the purview of S. 23-A, because a Hindu undivided family as such cannot be a shareholder in a company. The argument is that the narrow interpretation put on S 23-A will defeat the very purpose of the section. The second point urged is that the principle that a legal fiction must be carried to its logical conclusion cannot be overlooked in construing S. 23-A. The legal fiction enjoined by the section is that the profits must be "deemed to have been distributed as dividend amongst the shareholders as at the date of the general meeting". This legal fiction must be carried to its logical conclusion by holding that the dividend had been actually distributed and received by the Hindu undivided family. It is pointed out that if the same dividend were actually distributed by the company, it would certainly be income in the hands of the Hindu undivided family which would be liable to pay all taxes on its income, whether actual or artificial.7. We do not think that either of the two points urged by the appellant is really decisive of the question. The question is really one of interpretation of S. 23A, and we must interpret S. 23A with reference to its own terms. The section in express terms says that "the proportionate share of each shareholder shall be included in the total income of the shareholder for the purpose of assessing his total income". The section does not talk of the beneficial owner of the share. It talks of the shareholder only. Section 18 (5) of the Act deals with grossing up of dividend and two expressions occur thereon: "owner of the security" and the "shareholder". So far as the expression "owner of the security" is concerned it may perhaps include a beneficial owner; but it has been decided by this Court that the expression "shareholder" in S. 18 (5) means the shareholder registered in the books of the company. As we have earlier said, no good reason exists as to why the expression "shareholder" in S. 23-A shall not have the same meaning. Sub-section (3) and (4) of S. 23A also make the position clear; they talk of members of the company and a Hindu undivided family as such is not a member of the company.8. The position of a Hindu undivided family vis-a-vis a partnership was considered by this Court in Charandas Haridas v. Commissioner of Income-tax, Bombay. North Kutch and Saurashtra, Ahmedabad, 1960-39 ITR 202 : (AIR 1960 SC 910 ) and Commissioner of Income-tax, Bombay v. Nandlal Gandalal, 1960-40 ITR 1 : (AIR 1960 SC 1147 ). It is not disputed that the Hindu undivided family as such was not a shareholder of the company in the present case. Therefore, so far as the notional income is concerned, we must go by the terms of S. 23A and if there is any lacuna in the wording of the section, we cannot cure it in the guise of interpretation. The question here is not one of deciding the matter from the point of view of partnership law or Hindu law, as was the question in 1960-40 ITR 1 : (AIR 1960 SC 1147 ) (supra) which led to a difference of opinion. The question here is one of interpretation only and that interpretation must be based on the terms of the section. The fiction enacted by the Legislature must be restricted by the plain terms of the statute. Nor do we see how it can be said that the interpretation put on S. 23-A that it is confined to a shareholder registered in the books of the company defeats the very purpose of the section. The section will still apply to shareholders of the company and to their income will be added the notional income determined under S. 23A. We are unable to accept the argument that the principle that a legal fiction must be carried to its logical conclusion requires us to travel beyond the terms of the section or give the expression "shareholder" a meaning which it does not obviously bear.9. For these reasons we are of the view that the High Court correctly answered the question which was referred to it. In view of that answer the High Court rightly held that the second question referred to it did not fall for consideration.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It is clear from the section that an order made under it is not in itself an order of assessment, it has to be followed by an assessment on the shareholder either under S. 23 or under S. 34. Under the express terms of the section, the artificial or notional income has to be included in the total income of the shareholder for the purpose of assessing his total income.We do not think that either of the two points urged by the appellant is really decisive of the question. The question is really one of interpretation of S. 23A, and we must interpret S. 23A with reference to its ownAs we have earlier said, no good reason exists as to why the expression "shareholder" in S. 23-A shall not have the same meaning. Sub-section (3) and (4) of S. 23A also make the position clear; they talk of members of the company and a Hindu undivided family as such is not a member of the company.It is not disputed that the Hindu undivided family as such was not a shareholder of the company in the present case. Therefore, so far as the notional income is concerned, we must go by the terms of S. 23A and if there is any lacuna in the wording of the section, we cannot cure it in the guise of interpretation. The question here is not one of deciding the matter from the point of view of partnership law or Hindu law, as was the question in 1960-40 ITR 1  : (AIR 1960 SC 1147 ) (supra) which led to a difference of opinion. The question here is one of interpretation only and that interpretation must be based on the terms of the section. The fiction enacted by the Legislature must be restricted by the plain terms of the statute. Nor do we see how it can be said that the interpretation put on S. 23-A that it is confined to a shareholder registered in the books of the company defeats the very purpose of the section. The section will still apply to shareholders of the company and to their income will be added the notional income determined under S. 23A. We are unable to accept the argument that the principle that a legal fiction must be carried to its logical conclusion requires us to travel beyond the terms of the section or give the expression "shareholder" a meaning which it does not obviously bear.9. For these reasons we are of the view that the High Court correctly answered the question which was referred to it. In view of that answer the High Court rightly held that the second question referred to it did not fall for consideration.