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Issues Involved:
1. Whether there was any evidence to support the conclusion that the money paid for the purchase of 1,245 shares belonged solely to the assessee. 2. Whether the proportionate share in the undistributed profits of the company must be taxed in the hands of the shareholders in whose name the shares stood and nobody else, under the provisions of Section 23A of the Indian Income-tax Act. Detailed Analysis: Issue 1: Evidence Supporting Sole Ownership of Shares The first issue concerns whether the money paid for the purchase of 1,245 shares belonged solely to the assessee. The judgment did not delve deeply into this issue because it was rendered moot by the resolution of the second issue. The court focused primarily on the interpretation and application of Section 23A of the Indian Income-tax Act. Issue 2: Taxation of Undistributed Profits under Section 23A The core issue was whether the proportionate share in the undistributed profits of the company must be taxed in the hands of the shareholders in whose name the shares stood, specifically under Section 23A of the Indian Income-tax Act. 1. Section 23A Interpretation: - Section 23A creates an "artificial income" by deeming undistributed profits of a company as distributed among its shareholders. - The Tribunal's opinion was that in the case of joint shareholders, the shareholder whose name stands first in the register should be assessed. - The court disagreed, stating that the section does not specify that the first-named shareholder should be assessed. Instead, where shares are jointly held, the registered holders should be treated as an "association of persons" and assessed accordingly. 2. General Clauses Act: - Under the General Clauses Act, the singular includes the plural, implying that joint holders should be collectively regarded as the "shareholder." 3. Articles of Association: - Articles 106 and 171 of the company's Articles of Association were examined. These articles provide administrative procedures for voting and dividend payment but do not confer any special status on the first-named joint holder. 4. Charging Sections of the Income-tax Act: - Sections 3 and 4 of the Indian Income-tax Act were discussed. Section 3 is the main charging section, and Section 4 defines total income. - Section 23A was deemed a procedural section, not a charging section, creating a notional income that does not exist in the pocket of any shareholder. 5. Assessment of Joint Holders: - The court concluded that the joint holders, in this case, the assessee and his wife, should be assessed as an association of persons for the notional income under Section 23A. - The court rejected the Tribunal's view that only the first-named shareholder should be assessed. 6. Mandatory Nature of Section 23A: - The court emphasized the mandatory nature of Section 23A, which specifies that the notional income must be included in the total income of the shareholder, defined as the registered holders collectively. - The argument that the real income should be assessed to the beneficial owner was dismissed, as Section 23A does not provide for such an interpretation. 7. Relevant Case Law: - The court distinguished this case from the precedent set in Shapurji Pallonji v. Commissioner of Income-tax, Bombay, where the real share of partnership income was assessed, noting that Section 23A has specific mandatory provisions that differ from the general assessment rules for partnerships. Conclusion: The court answered the second question in the affirmative, holding that the joint holders of the shares, i.e., the assessee and his wife, are assessable to tax under Section 23A. Consequently, the first question did not arise. The Commissioner was ordered to pay the costs.
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