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TMI Blog1977 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... et dividend of Rs. 3,150 after deduction of tax of Rs. 1,350 from the company in respect of the said share warrants. In making the assessment on the assessee, the ITO refused to give any credit for the tax deducted at source and he straightaway taxed the net dividend of Rs. 3,150. According to him, the assessee was not entitled to the credit for the tax deducted at source because she was not registered in the books of the company as the owner of those shares and hence she could not be treated as the shareholder for the purpose of getting credit for the tax deducted at source under s. 199 of the Act. He relied upon the decision of the Supreme Court in Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215. The assessee preferred an appeal to the AAC, who did not accept the view of the ITO. The AAC took the view that the ratio of the Supreme Court decision in Howrah Trading Co.'s case [1959] 36 ITR 215 was not applicable, inasmuch as, in the instant case before him, there was no question of any dual ownership of shares in question, there was no conflict between the legal ownership and the equitable ownership of the shares and in fact it was the assessee who was both legal as well as benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder for the purposes of ss. 194 and 199 of the Act. In this behalf, the Tribunal pointed out that under the relevant provisions of the Companies Act as well as the articles of association of the company the bearer or holder of a share warrant was entitled to receive the dividend and was entitled to all the privileges and advantages which the shareholder has except those specifically mentioned in the articles and such holder of share warrant will have to be treated as if he was a shareholder of the company and as such the assessee would be entitled to the credit for the tax deducted at source. Alternatively, the Tribunal considered the question as to whether she could be eligible for the credit under the provisions of s. 237 of the Act even if it were assumed for the purpose of argument that as a holder of share warrants she could not be regarded as a shareholder and the Tribunal took the view that in the instant case the identity of the holder of the share warrants as being the person to whom the dividend was payable had been established without which the company would not have paid the dividend to her and since the company had made payment of dividend after deducting tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since the assessee in the instant case was merely a holder of share warrants in question, she could not be regarded as either a member or a shareholder of the company. According to Mr. Joshi, the expression "shareholder" occurring in s. 18(5) read with s. 16(2) of the 1922 Act (equivalent to s. 199 of 1961 Act) has been interpreted, and construed by the Supreme Court as being referable to a registered shareholder whose name has been entered or appears in the register of members maintained by the company. s. 194 of the Act speaks of deduction of tax being made at source by the company or the principal officer before making distribution or payment of dividend to a shareholder and s. 199 of the Act speaks of credit being given to the shareholder in respect of such deduction of tax at source made by the company or its principal officer and, according to Mr. Joshi, the Supreme Court in Howrah Trading Co.'s case [1959] 36 ITR 215 has (with reference to corresponding provisions of the 1922 Act being ss. 18(5) and 16(2)) taken the view that the provisions of those sections are applicable (meaning thereby the process of grossing up indicated in those provisions) only in the case of a sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare warrant is not one of the cases specified in r. 30A. He urged that the absence of a case of holder of share warrant in r. 30A should be taken to be the evidence of legislative intent on the part of Parliament that in the case of holder of a share warrant the benefit under s. 199 should not be available. On the other hand, Mr. Dwarkadas appearing for the assessee contended that if the provisions of ss. 114 and 115 of the Companies Act, particularly sub-s. (5) of s. 115, along with the relevant articles of association of the company, particularly art. 55, were carefully scrutinised, it will appear clear that for all purposes, except certain matters which have been specifically mentioned in art. 55, the holder or bearer of a share warrant has been regarded by the company as if he is a member of the company and, therefore, there was no reason why the holder of a share warrant should not be entitled to get credit for the tax deducted at source under the provisions of s. 199 of the I.T. Act. He urged that having regard to the aforesaid provisions the assessee will have to be regarded as a shareholder for the purpose of s. 199 of the Act and as such would be entitled to the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as a shareholder within the meaning of s. 199 of the Act, she should be entitled to get similar credit under the provisions of s. 237 of the Act. In order to decide the principal question that arises for our consideration as to whether the assessee could be regarded as a shareholder for the purpose of s. 199 of the Act or not, it will be necessary to refer to the relevant provisions of the Companies Act as well as the articles of association of the company. At the outset it may be stated that the expression "shareholder" has not been defined under the Companies Act though the expression "share" has been defined and the expression "member" has also been defined. s. 2(27) defines the expression "member" thus: " 'member', in relation to a company, does not include a bearer of a share warrant of the company issued in pursuance of section 114." The expression" share " has been defined in s. 2(46) thus: " 'share', means share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied." It is true, as was pointed out by Mr. Joshi, that in Howrah Trading Co.'s case [1959] 36 ITR 215, the Supreme Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his name entered as a member in the register of members. (3) The company shall be responsible for any loss incurred by any person by reason of the company entering in its register of members the name of a bearer of a share warrant in respect of the shares therein specified, without the warrant being surrendered and cancelled. (4) Until the warrant is surrendered, the particulars specified in sub-section (1) shall be deemed to be the particulars required by this Act to be entered in the register of members; and, on the surrender, the date of the surrender shall be entered in that register. (5) Subject to the provisions of this Act, the bearer of a share warrant may, if the articles of the company so provide, be deemed to be a member of the company within the meaning of this Act, for any purposes defined in the articles ........" Two or three things abundantly become clear on a reading of the aforesaid two sections. In the first place, under s. 114 a public company can, if so authorised by its articles, with the previous approval of the Central Government, issue a share warrant with respect to any fully paid-up shares, such share warrant stating that the bearer of the warra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsmission of shares shall not apply thereto; in other words, under art. 53 the shares specified in the share warrant become transferable by delivery of the share warrant. Art. 54 deals with reconversion of share warrant into share certificate. Then comes art. 55 which is most material and the last part of it, which is relevant runs thus: "......but the bearer of the share warrant shall be entitled in all other respects to the same privileges and advantages as if he were named in the Register of Members as the holder of the shares included in the warrant, and he shall be a member of the Company." This last portion of art. 55 clearly suggests that in all other respects, meaning other than those which have been specifically mentioned in the earlier part of the article, the bearer of the share warrant will have the same privileges and advantages as if he were named in the register of members as the holder of the shares included in the warrant and he shall be a member of the company. In the earlier part of the article, it is provided that no person shall, as the bearer of a share warrant, sign a requisition for calling a meeting of the company or attend or vote or exercise any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in the instant case the assessee's residential status must have been established before the company and after being satisfied about it the company must have deducted the tax at source in respect of shares specified in the share warrants which were so deposited; in other words, the deduction of tax would be related not only to the quantum of dividend but also to the person entitled to it and in this sense also the payment of dividend would be made by the company only to the person who holds the shares in the company. Having regard to these aspects of the matter, it seems to us clear that the assessee who is the holder of the relevant share warrants will have to be regarded holder of shares, the details of which were specified in the share warrants in question and as such she would be entitled to the credit for the tax deducted at source by the company while making payment of dividend to her under s. 199 of the Act. Looking at the question from the angle of the provisions of the I.T. Act also, the aforesaid position becomes very clear. It is true that under s. 194 the principal officer of the company before making any distribution or payment of dividend to a shareholder is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled to the processing contemplated by s. 18(5) read with s. 16(2) of the old Act or by s. 199 of the new Act; for instance the Supreme Court in Howrah Trading Co.'s case [1959] 36 ITR 215 was concerned with the question as to whether the purchaser or transferee of shares in whose name the shares had not yet been registered in the register of members of the company was entitled to the grossing up contemplated by s. 18(5) read with s. 16(2) of the Act or not. In terms it was a case where a person who had purchased shares in a company under a blank transfer and in whose name the shares had not been registered in the books of the company sought to obtain benefit of grossing up process under s. 18(5) read with s. 16(2) of the 1922 Act and the Supreme Court took the view that such a person was not a "shareholder" in respect of such shares within the meaning of s. 18(5) of the I.T. Act notwithstanding his equitable right to the dividend on such shares. At page 219 the Supreme Court has observed thus: " The words 'holder of a share' are really equal to the word 'shareholder', and the expression 'holder of a share' denotes, in so far as the company is concerned, only a person who, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this Act for that year, he shall be entitled to a refund of the excess." Now, irrespective of the question whether the assessee could be regarded as a shareholder or not in the sense of being a registered shareholder, it cannot be disputed that because she held shares in the company specified in the share warrants which were issued to her, the dividend became payable to her by the company and while paying the dividend which was due to her tax was deducted by the principal officer of the company, which deduction was admittedly at a higher rate than that at which the assessee was liable to pay in respect of dividend income which she was entitled to receive, and if that be so, it would be clear that the ITO should be satisfied that the amount of tax paid by her or on her behalf for the assessment year in question exceeded the amount for which she was properly chargeable for tax for that year and in that situation she would be entitled to claim credit for the excess tax paid by her or on her behalf to the income-tax department. In our view, therefore, even on the basis of the alternative submission made by Mr. Dwarkadas under s. 237, the assessee would be entitled to claim credit f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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