1959 (3) TMI 31 - SC - Companies Law

Whether in the facts and circumstances of this case the applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2) and claim credit for tax deducted at source under section 18(5) of the Income-tax Act ? Held that - The words of section 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 section 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. 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.Appeal dismissed.

Issues Involved:
1. Entitlement to grossing up of dividend income under section 16(2) of the Indian Income-tax Act.
2. Claim for credit for tax deducted at source under section 18(5) of the Indian Income-tax Act.
3. Definition and interpretation of the term "shareholder" in the context of the Indian Companies Act, 1913 and the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Grossing Up of Dividend Income under Section 16(2):

The assessee, a company, claimed that dividend income from shares, which were not registered in its name but were its property, should be grossed up under section 16(2) of the Indian Income-tax Act. The High Court rejected this claim, interpreting that an assessee whose name was not in the register of members of the companies was not entitled to the benefit of grossing up. The Supreme Court affirmed this view, stating that the word "shareholder" in section 18(5) had the same signification as the word "member" used in the Indian Companies Act. The Court emphasized that the company pays tax on its own liability and not as an agent for the shareholders. The principle was supported by English case law, such as Cull v. Inland Revenue Commissioners and Inland Revenue Commissioners v. Blott, which clarified that the company pays tax as a taxpayer, not on behalf of shareholders.

2. Claim for Credit for Tax Deducted at Source under Section 18(5):

The assessee also claimed credit for tax deducted at source under section 18(5) of the Indian Income-tax Act. The High Court, and subsequently the Supreme Court, held that this benefit could only be availed by a person whose name was on the register of members of the company. The Court referenced various cases, including Shree Shakti Mills Ltd. v. Commissioner of Income-tax and Jaluram Bhikulal v. Commissioner of Income-tax, which supported the interpretation that "shareholder" meant a registered member. The Court noted that while the transferee of shares in a blank transfer had certain equitable rights, these did not extend to claims against the company for dividends or tax credits unless the transferee's name was registered.

3. Definition and Interpretation of the Term "Shareholder":

The Supreme Court analyzed the term "shareholder" in the context of both the Indian Companies Act, 1913, and the Indian Income-tax Act. The Court concluded that the term "shareholder" or "holder of a share" referred to a person whose name was entered in the register of members. This interpretation was reinforced by the scheme of the Indian Companies Act, which used the terms "member," "shareholder," and "holder of a share" interchangeably. The Court cited authorities such as Buckley on the Companies Acts and cases like Nanney v. Morgan and In re Wala Wynaad Indian Gold Mining Company to support this view. The Court further clarified that the benefits under sections 16(2) and 18(5) could only be extended to a registered shareholder, as evidenced by the requirements of section 19A of the Indian Income-tax Act, which mandated that companies furnish details of shareholders from their register of members.

Conclusion:

The Supreme Court upheld the High Court's decision, concluding that the assessee, not being a registered shareholder, was not entitled to have the dividend income grossed up under section 16(2) or claim credit for tax deducted at source under section 18(5) of the Indian Income-tax Act. The appeal was dismissed with costs.

← Previous Next →