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TMI Blog1983 (7) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ount claimed without making a difference between the said sum of Rs. 22,975 which was the interest earned on the said State Electricity Board Bonds and the amount of tax deducted at source in respect of other securities. However, the ITO subsequently took the view that since the securities were never the property of the assessee, the tax deducted at source in respect of the interest earned on these securities cannot be taken as payment by the bank in computing the tax payable by the bank especially when the bank did not return the interest earned on the securities as its income. Treating the credit given to the assessee in a sum of Rs. 22,975 as a mistake apparent from the records, he initiated proceedings for rectification under s. 154 of the I.T. Act, 1961 (hereinafter referred to as " the Act"). The assessee resisted the rectification proceedings contending that it was not a mistake apparent from the record, that the question as to who as between the assessee and its constituents is the owner of the securities in the circumstances is a debatable point and, therefore, it was not a case for rectification. The ITO, however, overruled that objection and passed an order of rectificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 22,975 was invalid ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in giving credit for the tax deducted at source on interest on securities held by the assessee on behalf of its constituents, the income from which was at no point of time admitted for assessment by the assessee ? The following facts are not in dispute, The assessee has advanced monies to its constituents for the purchase of Electricity Board Bonds. On the instructions of the constituents the bonds have been purchased by the assessee with the amount advanced by it to the constituents. But the bonds had been taken in the name of the assessee-bank and kept in its possession as a security for the loan advanced to its constituents for the purchase of the bonds. Though the bonds were in the name of the assessee, the interest income from the bonds has not been returned by the assessee as part of its income in the relevant assessment year. This is presumably for the reason that the bank itself treated the bonds as security and the interest income from the bonds as the income of the constituents. Since the amounts had been advanced by the assessee-bank t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the bonds only as a creditor and not as their owner. Even according to the assessee the bonds had been purchased with the monies advanced by it to the constituents. Therefore, with reference to the bonds, the bank is only a creditor of the constituents and not their true owner. It is no doubt true, the bonds have been taken in the name of the assessee-bank and the certificate of deduction of tax was given in the name of the assessee. But once the assessee admits that it is in possession of the bonds only as a security for the amounts advanced to its constituents, the bank should be taken to be an ostensible owner and the real or beneficial owners of the bonds are only its constituents. In this case, the Tribunal has placed emphasis on the fact that the bonds are in the name of the assessee and the certificates of deduction have been given in the name of the assessee. That will make the assessee only an ostensible owner. When the assessee itself has admitted that the beneficial owners of the bonds are the constituents, we do not see how a debatable issue arises as to the ownership of the bonds. Even according to the assessee, it is the ostensible owner of the bonds and the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he securities may not have stood in his name at the time when the interest was paid." It is no doubt true, in the case of dividends to a shareholder, the tax deducted at source has to be given credit only to the shareholder and not to any other person as a beneficial owner, for a shareholder is one whose name finds a place in the register of the company. But in the case of securities, it has consistently been held by the courts that there is a possibility of one being the ostensible owner and another being a beneficial owner. In CIT v. Shakuntala [1961] 43 ITR 352, the Supreme Court has explained the position thus (p. 357) : , " The section does not talk of the beneficial owner of the share. It talks of the shareholder only. Section l8(5) of the Act deals with grossing up of dividends and two expressions occur therein : 'owner of the security' and the 'shareholder'. So far as the expression 'owner of the security' is concerned, it may perhaps include a beneficial owner; but it has been decided by this court that the expression 'shareholder' in section 18(5) means the shareholder registered in the books of the company. As we have earlier said, no good reason exists as to why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reon. The learned counsel for the assessee would contend that in a case as this where the income from the securities has not been offered for assessment, the only way open to the ITO is to call upon the assessee to offer the income from the securities for assessment but he cannot withdraw the benefit of the tax credit already given. We are not in a position to accept the contention of the learned counsel for the assessee. It is no doubt true, the ITO can, by initiating proceedings under s. 147, reopen the assessment and include the income from the securities as income of the assessee treating the assessee as the owner of the securities based on the fact that the certificates stand in the name of the assessee-bank and, ignoring the assessee's contention that it has got only a charge on the securities for the amount advanced to the constituents. But that will not take away the jurisdiction of the IT 0 to initiate proceedings under s. 154 to rectify a mistake apparent from the record, the mistake being that he has given the benefit of tax credit in a case where the income in respect of which tax has been deducted at source has not been offered for assessment. That is clearly a mista ..... X X X X Extracts X X X X X X X X Extracts X X X X
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