Case: Messrs. Howrah Trading Co., Ltd, Vs. The Commissioner Of Income-Tax, Calcutta

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 Ss. 16(2) and 18(5) 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 assessed 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 assessee in S. 16(2). The Department, on the other hand, says that the dividend can be increased under S. 16(2) and credit allowed under S. 18(5) if the assessee is a shareholder, because the benefit of S. 18(5) 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.12. 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. v. Commissioner of Income-tax, 1948-16 ITR 187 : (AIR 1948 Bom 394 ), Jaluram Bhikulal Firm v. Commissioner of Income-tax, 1952-22 ITR 490: (AIR 1953 Nag 187); Arvind M. Mafatlal v. Income-tax Officer, North Satara, 1957-32 ITR 350 : ((S) AIR 1957 Bom 134 ) and Bikaner Trading Co., Calcutta v. Commissioner of Income-tax, 1953-24 ITR 419 (Cal).13. The question that falls for consideration is whether the meaning given to the expression "shareholder" used in S. 18(5) of the Act by these cases is correct.No valid reason exists why "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.In In re, Wala Wynaad Indian Gold Mining Co-, 1882-21 Ch D 849 at p. 854, Chitty, J. observed:"I use now myself the term which is common in the Courts, 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 old 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 v. Sir John Oakley, 1925-9 Tay Cas 582; Spence v. Commissioners of Inland Revenue, (1941) 24 Tax Cas 311 and others cited at page 367 in Multipar Syndicate, Ltd. v. Devitt, 1945-26 Tax Cas 359.14. 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 S. 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 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 S. 20 as also of S. 18(5) is clear if they are read with S. 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 prescribe 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 (here in ) supplied).Section 19-A 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 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 synonymous.15. The words of S. 18(5) 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 S. 18(5) 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.16. 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.

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

Explanation:
0[ds]14. 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 S. 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 laysprincipal officer of every company shall, at the time of distribution of dividends, furnish to every person receiving 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 bemeaning of S. 20 as also of S. 18(5) is clear if they are read with S. 19A, under which information regarding dividends has to be supplied by the company when demanded by the Income-tax Officer. It laysprincipal 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 prescribe 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 (here in )19-A 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 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 synonymous.15. The words of S. 18(5) 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 S. 18(5) 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.