1. The question of law referred to this court is as follows :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate tribunal was correct in coming to the conclusion that there was a completed sale on February 5, 1948, and, thereforee, the sum of Rs. 3,59,559 was not liable to be taxed as the income of the assessed-company ?'
2. The assessed-company is a dealer in shares. The case relates to the assessment year 1953-54. In the course of its dealings in shares it entered into some transaction on February 5, 1948, with one Mrs. Rama Jain for the sale to her of 52,000 shares of Dehri Rohtas Light Railway Company Ltd. and of 22,500 shares of N. S. D. & Cold Storage Ltd. (valued at Rs. 8,40,500) and another with Mr. R. Dalmia for the sale of 7,500 shares of Dalmia Investment Co. Ltd. (for the value of Rs. 7,80,000 (though the transaction related to some other shares also but the same is not the subject-matter of reference before us). These shares were not taken delivery of nor was the price paid. But a settlement was arrived at in February, 1952 under which the assessed-company purported to repurchase the shares at the market value then prevailing (which had gone down) and was paid an amount of Rs. 2,51,235 by Rama Jain and Rs. 1,05,000 by R. Dalmia on account of the difference in the price of shares (along with certain debentures owned by them). After making a few adjustments the ITO found that the assessed had failed to account for the total of Rs. 3,59,559 in the books of account, and the ITO proposed to add this amount as a profit in respect of these two transactions. The case of the assessed, however, was that the transaction of sale was completed on February 5, 1948, and all that was done by a settlement of February 5, 1952, was that Mrs. Jain and Mr. Dalmia paid the sale price contracted for originally and sold back the shares to the assessed. The claim thus being that no profit arise in the previous year for which the assessment was being made namely, 1953-54 and there was no justification for inclusion of this amount. This plea, however, failed before the ITO as well as the AAC. The assessed, however, was successful before the Tribunal which accepted the plea of the assessed that the sale to the parties had taken place on February 5, 1948, and there was no question of any profit having arise in the previous year to the assessment year. The Commissioner or Income-tax asked for a reference to be made which has been done by the Tribunal as mentioned above.
3. The main and really the only point which arises in the reference is whether on the facts found there was a completed sale of the said shares to Mrs. Jain and Mr. Dalmia as claimed by the assessed on February 5, 1948. It is not disputed that if there was a completed sale of these shares as held by the tribunal the reference has to be answered against the revenue.
4. Now, according to the revenue, there was only an agreement of sale as per agreement dated February 5, 1948, while according to the assessed the shares were sold and the transaction completed by the said document. According to the terms of the documents dated February 5, 1948, the shares could be taken delivery of by March 31, 1948. It also provided that if the shares were not taken delivery of by the said date the dividends, etc., after that date will be for the benefit of the parties who were liable to pay interest at 6% from April 1, 1948. If the shares were not taken delivery of by the said two parties the bank was at liberty to sell them after March 31, 1948. As mentioned above, admittedly, the shares were not taken delivery of nor money paid for them at that time.
5. The further admitted facts re that the shares which were the subject-matter of the agreement on February 5, 1948, never left the custody of the bank. There was never a delivery of the said shares to Mrs. Jain or Mr. Dalmia. There is nothing on record to show that the Seriall numbers of the said shares were ever identified or even indicated by the bank to the parties concerned. There is no material on record to show that the shares agreed to be sold to Mrs. Jain and Mr. Dalmia were the only shares with the bank. There was also no dispute that no money was paid for the alleged purchase of these shares by Mrs. Jain and Mr. Dalmia on February 5, 1948, or even later except an amount paid in pursuance of the settlement said to have been made on February 5, 1952. The assessed-company did not debit the accounts of Mrs. Rama Jain and Mr. Dalmia 1948 onwards and only did it in 1952 after the alleged settlement was reached. The assessed-company also continued to show the value of the said shares in its closing stock. These shares were even shown as opening balance in the assessed's book as on January 1, 1952. There is also mention of the letter of March 7, 1953 wherein the company had informed the ITO that 'these shares could not belong to the purchaser till they pay the price thereof to the company, and took delivery from us'.
6. In spite of these facts, which prima facie would have shown that there was in fact no sale by the assessed, the tribunal came to the conclusion that there was a completed transaction by the agreement of February 5, 1948, amounting to a credit sale. This it did because it held that the various conditions mentioned in the said agreement, namely, that 'we sell' and 'we buy' and the shares so purchased will be taken delivery of by March 31, 1948, was only consistent with the fact that there had been a sale of shares. It also held that the further conditions that the dividend will be payable to Mrs. Jain and Mr. Dalmia and that interest will be paid by them after delivery of shares was not taken by March 31, 1948, meant that a relationship of debtor and creditor had come into existence (otherwise the question of payment of interest would not arise) and this showed that there was a concluded sale. Though the Tribunal did notice that the accounts of Mrs. Jain and Mr. Dalmia were only debited in 1952, it characterised it as an irregularity in proper accounting, i.e., in recording truthfully the transaction, but that non-recording of entries in the books did not destroy any rights created by the terms of the letter dated February 5, 1948. It also noticed that the value of the shares continued to be shown in the closing stock of the assessed-company but brushed it aside by observing that it was not unknown in the business world to disclose in the closing stock of one of the goods belonging to others only to claim a larger amount of overdraft from the banks. With respect we should have though this kind of practice which the Tribunal itself characterised of not recording truthfully the transactions or the practice of including in one's closing stock goods belonging to others for the purpose of over valuation of its assets would rather have shown that there was in fact no completed sale but all these were devices to give a mere agreement of sale, the cover of a completed transaction with a view to evaded the payment of tax. But we need not really dilate on this aspect because we feel that there is a fundamental fallacy in the conclusion reached by the Tribunal as to when the title in movable property passed to the buyer with the result that it has committed a patent error of law.
7. Shares are movable property in terms of the sale of Goods Act. When and at what time a property can pass on to the buyer is laid down in Chap. III. Section 19 provides that where there is a contract for the sale of specific or ascertained goods the property in there is transferred to the buyer at such time as the parties to the contract intend it to be transferred; and for the purpose of ascertaining the international of the parties to the contract, regard shall be had to the conduct of the parties. Sub-section (2) of s. 19 elaborates that the rules in ss. 20 to 24 are to be looked at for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Section 21 provides that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state the property does not pass unless such thing is done and the buyer has notice thereof. The Tribunal has, however, not referred to s. 21 because according to it s. 20 which provides that if there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods is postponed and opined that the mere fact that the payment was made on February 5, 1948, or that the delivery of shares was not made does not mean that the property did not pass on to the buyers in February, 1948. This, however, omits to notice that in terms of s. 21 unless shares were specified by Seriall numbers which can be identified it cannot be said to be a contract for sale of specified goods as contemplated by s. 21 of the Act, as they would remain unascertained. (See Alfred William Domingo v. L. C. De'Souza : AIR1928All481 . It is by now well established that only a person who is on the register is in the full sense of the word the owner of the share. 'But the title to get on the register consists in the possession of a certificate together with a transfer signed by the registered holder' (vide Maneckji Pestonji Bharucha v. Wadilal Sarabhai and Co. AIR 1926 PC 38. An agreement to transfer shares in a company accompanied with the actual instrument of transfer which has not been completed so far as the transferor could complete it does not amount to transfer deed sufficient to cause the title to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state (vide Kuppiah Chetty v. Saraswathi Ammal  11 Comp Case 334; AIR 1941 Mad 769. In what circumstances legal ownership or equitable ownership passes to the buyer has been the subject-matter of a good deal of a case-law. But we need not dilate on this because almost a similar matter raising these very points has been the subject-matter of a decision of this court, namely, R. Dalmia v. CIT  1 Del 30, which was very daily and properly brought to our notice by the counsel for the assessed, Mr. Bishamber Lal himself. In that case also, the sale was again by the present assessed, Bharat Nidhi, and was on the same terms as in the present case. There also no money was paid at the time of entering into agreement in February, 1948, nor were the shares transferred. It was recognised by the assessed that under the Companies Act unless the shares are registered with the company the person who is registered with the company continues to be the owner and the company will not recognise the person as an owner unless registration takes place. Realizing this, an argument had been sought to be raised that even if shares continued to be registered in the name of the vendor (as in the present case undoubtedly the said shares continued to be registered in the name of the assessed), there was at least an unconditional contract for sale of the beneficial ownership of the shares. The Bench accepted that the equitable ownership could pass but held that the equitable ownership in shares can be transferred by the owner by signing a blank transfer form and handing over the share scrips to the transferee. The Bench observed :
'It would, thereforee, follow that equitable ownership in shares can be transferred by the owner by signing a blank transfer form and handing over the transfer from along with the share scrips to the transferee. So far as the company of which the shares are the subject-matter of transfer is concerned, it would not recognise the transferee as the owner of the shares till such time as the transfer is registered and the name of the transferee is entered in this registers as the owner of those shares. It would be only after his name is entered in the registers of the company as the owner of the shares that the transferee would acquire legal ownership in the shares.' (R. Dalmia's case  1 Del 30.
In the present case, admittedly, there is not even a suggestion that any transfer form or the share scrips were handed over to Mrs. Jain or Mr. Dalmia by the assessed. The argument, thereforee, that equitable ownership in the shares was transferred to the assessed on February 5, 1948, must be repelled. That without the specification of the shares the contract for sale for specific goods as contemplated by s. 21 of the sale of Goods Act cannot be held to be complete was also accepted by the said Division Bench. We can find no difference at all not only on the points of law but frankly more or less even on the question of facts, between the instant case and the above case.
Mr. Bishamber Lal, Realizing the difficulty of this Division Bench, has of course contended that this lays down wrong law. According to him, accompaniment of the transfer forms or the share scrips along with contract of sale is not necessary to constitute a full sale and the moment a letter was given on February 5, 1948, the transaction of sale was completed. We are unable to agree, and, this also runs contrary to the observation in Bank of India Ltd. v. Jamsetji, A. H. Chinoy, AIR 1950 PC 90 wherein it was observed : 'Their Lordships do not desire to cast doubt on the proposition that in India a purchaser of shares (which under the Indian sale of Goods Act come within the definition of 'Goods') does not acquire an equitable interest by virtue of the contract of sale.'
8. We may not that the Supreme Court in 0043/1977 : 110ITR644(SC) (Seth R. Dalmia v. CIT) which was a decision from the above said Division Bench judgment of this court in Dalmia's case  1 Del 30 though leaving open the question of transfer of equitable title referred with approval to the said observations of the Privy Council and said :
'It would appear from the observations of the Privy Council that even though the transaction may not amount to acquisition of equitable interest .... the terms regarding dividends would be fully effective ..... even though there may not have been any transfer of equitable title to the purchaser.'
9. But he cannot derive any support. The Supreme Court had disagreed with the question of deduction on account of interest paid by the assessed on the loan raised by him for the purpose of levying the shares.
10. The High Court had disallowed this item but the Supreme Court reversed this and held that a genuine and bona fide contract had been entered into between the assessed and the bank for transfer of large number of shares to the assessed and that the assessed in pursuance of the agreement had raised a loan and had paid interest and, thereforee, it was entitled to claim the amount of interest paid as a deduction in its profit and loss account. Mr. Bishamber Lal seeks to find support from this finding to urge that as it was held that Dalmia in pursuance of a contract for acquisition of shares, was entitled to claim deduction on the amount of interest paid, it meant that the court held that there was a completed transaction of sale. This argument is unacceptable because the Supreme Court specifically at p. 648 stated that it was not necessary for the court to decide the question of equitable transfer, in order to give relief to the appellant because of its decision on the other points. Rather from the judgment of the Supreme Court it is established that it accepted that the shares never belonged to Dalmia and continued to be owned by the bank because in repelling the argument that the expenditure for interest should be treated to be an expenditure of a capital nature, it observed (p. 653) that as the shares were not the stock-in-trade of the appellant (Dalmia) it could not be said that the interest paid by the assessed to the bank was an expenditure of capital nature. The observation that the shares were not the stock in trade of the appellant inevitably must mean that they were the stock-in-trade of the bank which is only consistent with the finding that the completed transaction of sale in favor of Dalmia had not taken place. Similar is the position of the shares in the instant case where, admittedly, the said shares have been continued to be shown as stock-in-trade of the assessed and the value of shares included in its closing stock. It is not understood nor is it logical to accept that if the claim that the shares had been sold were true why they should continue to be shown as part of closing stock of the assessed. It is also common case that the price of the shares was never credited to the assessed's account in 1948. In fact, the only entries made in the accounts started after the so called settlement, made in 1952. We can thus find no distinguishing feature from Dalmia's case mentioned above and following that with respect we are of the view that the question of law was wrongly decided by the Tribunal. We would, thereforee, hold that the Tribunal was wrong in law in coming to the conclusion that there was a completed sale of shares on February 5, 1948. In view, no equitable title in the ownership in the said shares passed on either to Mrs. Jain or Dalmia. In our view, the sum of Rs. 3,59,559 (which has been wrongly printed as Rs. 3,50,559 at p. 5 of the paper book, because both the counsel for the parties have agreed that the correct figure should be Rs. 3,59,559) was liable to be included in the income of the assessed and taxed as such as held by the ITO and the AAC and the Income-tax Tribunal committed an illegality in holding that it was not so liable to be taxed and ordering deletion. We would, thereforee, answer the question referred to us in the negative and in favor of the revenue. The reference is answered accordingly. The parties will bear their own costs.