1977 (8) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to credit for tax deducted at source.
2. Definition and recognition of "shareholder" under the Companies Act and the Income Tax Act.
3. Applicability of s. 199 and s. 237 of the Income Tax Act.
4. Validity of tax deduction certificates.

Detailed Analysis:

1. Entitlement to Credit for Tax Deducted at Source:
The primary issue was whether the assessee was entitled to the credit of Rs. 1,350 deducted at source from the gross dividend of Rs. 4,500. The Income Tax Officer (ITO) refused this credit, arguing that the assessee was not registered in the company's books as the owner of the shares and, therefore, could not be treated as a shareholder for the purposes of s. 199 of the I.T. Act, 1961. The Appellate Assistant Commissioner (AAC) and the Tribunal, however, held that the assessee was both the legal and beneficial owner of the shares specified in the share warrants and thus entitled to the credit for the tax deducted at source.

2. Definition and Recognition of "Shareholder":
The court examined the definition of "member" under s. 2(27) of the Companies Act, which excludes the bearer of a share warrant. The court also considered the Supreme Court's interpretation in Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215, which equated "member," "shareholder," and "holder of a share." However, the court noted that s. 115(5) of the Companies Act allows the bearer of a share warrant to be deemed a member for purposes defined in the articles of association. The relevant articles of association of the company, particularly art. 55, treated the bearer of a share warrant as a member for all purposes except those specifically mentioned, thus entitling the bearer to the same privileges and advantages as a registered member.

3. Applicability of s. 199 and s. 237 of the Income Tax Act:
The court held that the assessee, as the holder of share warrants, should be regarded as a shareholder for the purposes of s. 199 of the I.T. Act. This conclusion was based on the provisions of ss. 114 and 115 of the Companies Act and the articles of association. The court also considered the alternative argument under s. 237 of the I.T. Act, which allows for refunds if excess tax has been paid. The court found that the tax deducted at source was indeed paid on behalf of the assessee, and since it exceeded the amount properly chargeable, the assessee was entitled to a refund under s. 237.

4. Validity of Tax Deduction Certificates:
The Tribunal addressed the department's contention that the tax deduction certificate did not comply with the form prescribed under r. 31(4) of the I.T. Rules, 1962. The Tribunal allowed the assessee an opportunity to obtain and produce a proper tax deduction certificate in the prescribed form. The court upheld this approach, indicating that any mistake in the certificate issued by the company should not penalize the assessee.

Conclusion:
The court concluded that the assessee was entitled to the credit for the tax deducted at source under s. 199 of the I.T. Act. Alternatively, the assessee was also entitled to a refund under s. 237 of the Act. The question referred to the court was answered in the affirmative and in favor of the assessee. There was no order as to costs since the assessee was not charged by her legal advisers.