The Income-tax Appellate Tribunal has referred the following question for our opinion :- "Whether in the circumstances of the case, is the assessee entitled to the benefits of Sections 16(2) and 18(5) of the Indian Income-tax Act in respect of the sum of Rs. 5,086 ?" 2. The assessee had purchased certain shares but did not get his name registered in the books of the company. In the assessment year 1948-49 he returned the incomes from dividend on these shares and produced the relevant dividend certificates. As the shares did not stand in the name of the assessee but other persons, the Income-tax Officer did not treat this incomes as income from dividends and did not grant the relief under Section 16(2) and Section 18(5) of the Indian Income-tax Act. The receipt was treated as income from other sources. This order was confirmed by the Appellate Assistant Commissioner and the Appellate Tribunal.
3. Under Section 4(1) the total income of any previous year of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in British India in such year by or on behalf of such person. Section 16(2) provides :- "For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of as company.....for the financial year in which the dividend is paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend." This is what is known as grossing up dividends and the amount by which the income from dividend is increased under this section is treated as tax paid on behalf of the assessee. That is Section 18(5) which, so far as it is material for this case, runs :- ".....any sum by which a dividend has been increased under sub-section (2) of Section 16, shall be treated as a payment of income-tax....on behalf...of the shareholder....and credit shall be given to him therefor in the assessment, if any, made for the following year under this Act." Section 48(3) and Section 49B were also referred to by the learned counsel for the assessee. Under the latter section if the income from dividend is included in the total income of a shareholder, he shall be deemed in respect of such dividend himself to have paid the income-tax though thee tax on this income has in fact been paid by the company which has distributed that dividend. Section 48(3) is not relevant. It says that where an income of one person is included under any provision of the Act in the total income of any other person, such other person only shall be entitled to a refund under the section in respect of such income. The sum in question is not the income of any other person which under the provisions of the Act is included in the total income of the assessee.
4. From the foregoing provisions it is clear that the person who is entitled to the benefit of the income-tax paid by a company on the dividend distributed by it is the shareholder. Relying on Shri Shakti Mills Ltd. v. Commissioner of Income-tax Bombay, the Tribunal has held that "shareholder" mentioned in Section 18(5) of the Act is a person who owns shares and who is shown as a shareholder in the register of the company. The word "shareholder" is not defined in the Act or in the Indian Companies Act. Under the Companies Act the subscribers to the memorandum of the company and every other person who agrees to become a member of the company and whose name is entered in the register of members shall be a member of the company. As every company incorporated under the Indian Companies act is not limited by shares, a more comprehensive word, namely, "member" and "shareholder" are synonymous.
A member is a shareholder and a shareholder is a member. See Palmers company Law, 19th Edition, page 81. Under Section 28 of the Indian Companies act the share of any members in a company is movable property transferable in the manner provided by the Articles of the company.
Section 34, read with the Articles of the company, provide the mode of transfer of shares. Where the Articles of a company provide that an instrument of transfer is to be executed both by the transferor and the transferee, a transfer executed by the transferor alone does not pass title. Where a shareholder has, under the Article, an unrestricted right to transfer his shares, the transfer his shares, the transfer is complete as soon as the parties sign the deed of transfer. The assessee had led no evidence to prove that the transfer in his favour were complete.
5. Under Regulation 18 of Table A in the First schedule to the Companies Act the transferor shall be deemed to remain holder of the share until the name of transferee is entered in the register of members in respect thereof. The right to transfer may be subject to conditions. The learned counsel has not brought to our notice any Article of the company in respect of whose shares the amount in question was received which dispenses with this requirement of Regulation 18. Pending registration the transferee has only in an equitable right to the shares transferred to him. He does not become the legal owner until his name is entered in the register in respect of shares transferred to him. Delay in registration involves danger to the transferee, for some prior equity may come to light as in Ireland v.Hari, where a husband mortgaged shares of which he was a trustee for the wife. In order to become a legal owner of the shares it is not enough to merely hold physical possession of the share certificate, but it is necessary to have the name entered in the register of members and also on the share certificate. This is really the sense in which the word "shareholder" has been used in Section 18(5) and Section 49B of the Indian Income-tax Act. We are unable to accede to the contention that a person who has an equitable right to the shares is the shareholder within the meaning of this word in the Act. In that view, an equitable mortgagee would also be a shareholder along with the legal owner and though the former does not recieve dividend he may be held liable for suppressing this income or furnishing inaccurate particulars of income. Such a construction is hardly reasonable. We are in respectful agreement with the view taken in Shakti Mills case cited supra and hold that the assessee is not entitled to the benefits of Section 16(2) and Section 18(5) because he is not registered as a shareholder.
6. The reference is answered in the negative. The assessee will pay the cost of this reference. Counsels fee Rs. 100. Paper Book costs will be paid by the assessee.