1973 (9) TMI 9 - HC - Income Tax

Refund of TDS - assessee was allotted certain shares on partition - assessee made application for registration of the transfer that there was delay in registration because of the attachment of the shares by income-tax department- the dividend declared was also assessed - whether the assessee is entitled to claim refund of the TDS Held, yes

Summary

Issues:
Interpretation of tax deduction at source on dividend income for a beneficial owner of shares, compliance with section 108 of the Companies Act for transferring shares, applicability of rule 30A for credit of tax deducted at source to a beneficial owner.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, initiated by the Commissioner of Income-tax regarding the assessment years 1963-64, 1964-65, and 1965-66. The case involved a Hindu undivided family where a partial partition was conducted, and shares of a company were allocated to the members. Despite the shares not being transferred in the assessee's name immediately due to an attachment, the dividend was assessed in his hands as the beneficial owner. The issue revolved around whether the assessee was entitled to the tax credit for the dividend income. The Appellate Assistant Commissioner enhanced the income without allowing the credit, but the Income-tax Appellate Tribunal ruled in favor of the assessee, leading to the reference question.

The key legal question was whether a beneficial owner of shares, not a registered shareholder, is eligible for the tax credit on dividend income. Under the Income-tax Act, 1961, provisions from sections 192 to 194 mandate tax deduction at source by companies on dividend payments to shareholders. Section 199 allows for credit of tax deducted at source to a person other than the registered shareholder if the income from dividend is assessable in their hands. Rule 30A further specifies conditions for granting credit to a beneficial owner, particularly when shares are transferred to them as per section 108 of the Companies Act, 1956.

The court analyzed the provisions of section 199 and rule 30A to determine the eligibility of the assessee for the tax credit. It was established that the beneficial owner could claim the credit if shares were transferred to them and action was taken for registration as per the Companies Act. The Tribunal's finding that the transferor and transferee combined in executing the transfer was crucial in establishing compliance with section 108. The delay in transfer was attributed to the attachment of shares by the income-tax department, not due to non-compliance with the Companies Act.

Ultimately, the court ruled in favor of the assessee, affirming their entitlement to the tax credit for the dividend income. The judgment emphasized that compliance with section 108 of the Companies Act was essential, and in this case, the necessary steps for transfer were taken within the relevant period. The decision set a precedent for connected cases involving similar issues within the family.