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Interpretation of sections 16(2) and 18(5) of the Indian Income-tax Act regarding entitlement to benefits based on share ownership and registration. Analysis: The case involved a question referred by the Income-tax Appellate Tribunal regarding the entitlement of the assessee to benefits under sections 16(2) and 18(5) of the Indian Income-tax Act concerning a sum of Rs. 5,086. The assessee had purchased shares but did not register them in his name, leading to the Income-tax Officer treating the income from dividends as income from other sources rather than granting relief under the specified sections. This decision was upheld by the Appellate Assistant Commissioner and the Appellate Tribunal. The relevant provisions of the Indian Income-tax Act were examined to determine the entitlement to benefits. Section 16(2) deems dividends as income of the previous year in which they are paid, credited, or distributed to the assessee, increasing the amount to reflect tax payable. Section 18(5) treats the increased dividend amount as a payment of income tax on behalf of the shareholder, providing credit in the subsequent year's assessment. The concept of grossing up dividends and the tax treatment of increased dividends were crucial in this case. The Tribunal relied on the definition of "shareholder" from a previous case to determine that a shareholder, as mentioned in section 18(5), is a person who owns shares and is registered as a shareholder in the company's register. The distinction between a member and a shareholder in a company limited by shares was highlighted, emphasizing that registration as a shareholder is essential to claim benefits under the Act. The legal requirements for transferring shares and becoming a legal owner were discussed in detail, emphasizing the importance of registration in the company's register of members. The Court concluded that the assessee, not being registered as a shareholder despite having an equitable right to the shares, was not entitled to the benefits under sections 16(2) and 18(5) of the Indian Income-tax Act. The interpretation of "shareholder" in the Act was crucial in determining the assessee's eligibility for the tax benefits related to dividends. The reference was answered in the negative, with the assessee directed to pay the costs of the reference, including counsel's fee and paper book costs.
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