Ajit Kumar Sengupta, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions of law have been referred to this court for the assessment years 1967-68 and 1968-69 :
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the income received by the assessee through the trust was an income by way of dividend within the meaning of Section 80M of the Income-tax Act, 1961 '
2. Without prejudice to question No. 1, whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80M of the Income-tax Act, 1961, the assessee was entitled to the deduction under the said section in respect of the income received through the trust '
2. The facts which are admitted and/or found by the Tribunal are stated hereinafter.
3. In the assessment for the assessment year 1967-68, a sum of Rs. 28,53,698 by way of gross dividend from a trust was included. From the gross dividend of Rs. 28,63,820, expenses of Rs. 10,122 were deducted and the balance was included. Thereafter, by an order under Section 155 of the Act in respect of the same assessment year, the ITO included the amount of dividend from the trust of Rs. 28,53,698 and the benefit of tax deducted at source of Rs. 6,04,771 was allowed. In neither of the two orders was there any discussion regarding the deduction under Section 80M. For the assessment year 1968-69, the trust dividend of Rs. 28,63,820 was considered and after deducting a sum of Rs. 10,004 on account of expenses, the balance of Rs. 28,53,816 was included in the total income. The benefit of tax deducted at source for Rs. 6,30,040 was allowed. The ITO also granted deduction under Section 80M with reference to the dividend income. By an order under Section 155(5) of the Act, later on, for the same assessment year, the ITO did not disturb either the inclusion of the said dividend income or the deduction under Section 80M.
4. The Additional CIT considered the aforesaid two assessment orders as framed by the ITO to be erroneous and prejudicial to the interests of the Revenue in view of the grant of deduction under Section 80M of the Act with reference to the dividend income received through the trust and initiated proceedings under Section 263(1) of the Act. In accordance with the provisions of the said Sub-section, an opportunity of being heard was given to the assessee company. The Additional Commissioner's proposal under Section 263(1) was objected to on the ground that the assessee company was the real owner of the shares through the trust which was holding the shares of the assessee company itself and, hence, the dividend income in respect of those shares received by the assessee company through the trust would fall for consideration under Section 80M.
5. The Additional CIT referred to the orders of the Appellate Tribunal for the assessment years 1959-60 and 1960-61 (under the I.T. Act) and for the assessment year 1963-64, under the Super (Profits) Tax Act. When the Tribunal found that the amounts of dividend included in the said assessment years were the dividends declared by the assessee company in favour of the trust which passed on the same to the assessee company, the assessee company raised an objection to the inclusion of such dividends from the trust in its assessments. This was turned down by the Appellate Tribunal with the observation that even if the amounts received were not dividends, they were income and taxable.
6. According to the Additional CIT, the claim for benefit under Section 80M could not be accepted as the trust did not show that the assessee was the owner of the shares. He found that the owner of the shares was the trust and the assessee company was only entitled to the profits of the trust as a beneficiary. With these observations, he held that it was not proper for the ITO to allow deduction under Section 80M to the assessee company in the instant two years with reference to the income received by it from the trust. Consequently, by exercising his powers under Section 263, the Additional Commissioner directed the ITO to withdraw the relief under Section 80M and to review the two assessments accordingly.
7. Being aggrieved, appeals were preferred before the Appellate Tribunal by the assessee company. After giving due consideration to those submissions, the Tribunal found certain undisputed facts such as the assessee company was not the registered shareholder, but only the trust was the registered shareholder and in both the assessments, the dividend income arising out of the shares held by the trust was included and the benefit of deduction of taxes at source at the time of payment of dividend was allowed. The Tribunal held that once the gross total income of an assessee being a company included any income by way of dividends from a domesticcompany, the assessee company would become entitled to deduction under Section 80M irrespective of any finding as to whether the assessee company was a registered holder of shares in respect of which the dividend income was earned. The Tribunal also considered various provisions of the I.T. Act, 1961, relating to dividend income, the year of its assess ability and the person in whose hands it was assessable. Keeping all these in view, the Tribunal held that the circumstances of the case did not warrant assumption of jurisdiction by the Additional CIT by invoking the provisions of Section 263(1) of the Act in order to hold that the orders passed by the ITO were erroneous and prejudicial to the interests of the Revenue.
8. At the hearing before us it has been contended by Mr. A. C. Moitra, learned advocate on behalf of the Commissioner, that the company for its purposes does not recognise any trust or equitable ownership in shares. It only recognises the registered shareholders as the owners and pays the dividend to the shareholders. In support of his contention, he has relied on several decisions of the Supreme Court which we shall presently refer.
9. The first decision cited by Mr. Moitra is in the case of Howrah Trading Co. Ltd. v. CIT : 36ITR215(SC) . In that case, the assessee had received sums of Rs. 3,831, Rs. 6,606, Rs. 7,954 and Rs. 8,304 in the four years respectively (assessment years 1944-45, 1945-46, 1946-47 and 1947-48) as income from dividend. The shares in respect of which this dividend income was received were the property of the assessee, but in the books of the various companies, these stood in the names of other persons. It appears that those shares were purchased by the assessee from other persons under a blank transfer, but the transfers had not been registered with the various companies. The assessee's claim in these income-tax proceedings was that these shares although not registered in the name of the assessee were the property of the assessee. It was further claimed that this dividend income should be grossed up under Section 16(2) and credit for the tax deducted should be allowed to the assessee under Section 18(5). The ITO did not accept this claim and the appeals of the assessee were rejected by the AAC and by the Tribunal.
10. The question in that case was whether the assessee was entitled to have the dividend income grossed up under Section 16(2) and claim credit for tax deducted at source under Section 18(5) of the Indian I.T. Act, 1922. The Supreme Court held that a person who has purchased shares in a company under a blank transfer and in whose name the shares have not been registered in the books of the company is not a 'shareholder' in respect of such shares within the meaning of Section 18(5) of the I.T. Act, notwithstanding his equitable right to the dividend on such shares, andis not, therefore, entitled to have this dividend income grossed up under Section 18(5) of the Act.
11. The same view was reiterated by the Supreme Court in the case of ITO v. Arvind N. Mafatlal [l962] 45 ITR 271. In that case, the Supreme Court held that it is only the registered shareholder who is entitled to the benefit of the credit for tax paid by the company under Section 18(5) as well as the corresponding grossing up under Section 16(2) of the Indian I.T, Act, 1922. There, the shares were held by three partners of a firm but it appeared that the shares were really held by these persons for the firm itself. The Supreme Court held that the only persons who were entitled to be treated as shareholders to whom the provisions of Sections 15(2) and 18(5) were attracted were the three partners, in spite of the fact that they were mere benami-dars for the firm. The ITO, therefore, committed an error in treating the registered firm as the owner of the shares.
12. The next decision cited by Mr. Moitra is in the case of CIT v. C. P. Sarathy Mudaliar : 83ITR170(SC) . There, members of a HUF acquired shares in a company with the funds of the family. Loans were granted to the HUF and the question was whether the loans could be treated as dividend income of the family falling within Section 2(6A)(e) of the Indian I.T. Act, 1922. It was held by the Supreme Court that only the loans advanced to shareholders could be deemed to be dividends under Section 2(6A)(e). The HUF could not be considered to be a ' shareholder ' under Section 2(6A)(e) and, hence, the loans given to the HUF could not be considered as loans advanced to a 'shareholder' of the company and could not, therefore, be deemed to be its income. When the section speaks of 'shareholder', it refers to the registered shareholder and not to the beneficial owner. In Kishanchand Lunidasing Bajaj v. CIT : 60ITR500(SC) , the Supreme Court explained the decision in the case of Howrah Trading Company Limited : 36ITR215(SC) and held as follows (headnote) :
' Tax being charged by Section 3 of the Indian Income-tax Act, 1922, upon dividend income and not being excluded under Section 4(3), such income would be chargeable to income-tax under the Act in the hands of the person to whom it accrues or by whom it is received. A company for its purposes does not recognise any trust or equitable ownership in shares. It merely recognises the registered shareholder as the owner and pays the dividend to that shareholder. But the shares may, because of a trust or other fiduciary relationship, belong to a person other than the registered shareholder, and the dividend distributed by the company would for the purpose of tax be deemed to accrue or arise to the real owner of the shares.'
13. The Supreme Court in Howrah Trading Co. Ltd.'s case : 36ITR215(SC) and Arvind N. Mafatlal's case : 45ITR271(SC) held that it is only the registered shareholder who could get the benefit of credit for the tax deducted at source from the dividend and not a beneficial owner of shares. A purchaser of shares who had not got his shares transferred in the books of the company would not get the benefit of tax deducted at source from the dividend. However, in view the provisions of Clause (ii) of the first proviso to Section 199 of the I.T. Act, 1961, read with Rule 30A of the I.T. Rules, 1962, the said decision would no longer be applicable. Section 199 provides as follows:
' Any deduction made in accordance with the provisions of sections 192 to 194, Section 194A and Section 195 and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under Section 203 in the assessment (including a provisional assessment under Section 141A, if any, made for the immediately following assessment year under this Act.'
14. Clause (ii) of the first proviso of Section 199 reads as follows :
' (ii) in any Other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed.'
15. Rule 30A, so far as is material for the purpose of this reference, reads thus:
30A. (1) Subject to the provisions of Sub-rule (2), where the dividend on any share is assessable as the income of a person other than the shareholder, any deduction made in accordance with Section 194 and paid to the Central Government, shall be deemed to be a payment of tax on behalf of, and the credit in respect thereof shall be given to, such other person in the circumstances specified below, namely :--...
(vi) where shares are held by a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)), and the dividend thereon is received by the trustee on behalf of, or for the benefit of, any person who is a beneficiary of the trust; '
16. Sub-rule (2) of Rule 30A reads as follows :
' The credit referred to in Sub-rule (1) shall not be given unless the person entitled to such credit furnishes to the Income-tax Officer a declaration in Form No. 15B made by him and the shareholder concerned, together with a certificate of deduction of tax at source in Form No. 19.'
17. It, therefore, follows that a person other than the registered shareholder is entitled to get credit in respect of tax deducted at source from the dividend in view of the provisions contained in Section 199 read with Rule 30A.
18. In this case, the assessed was holding the shares of another company, Messrs Steel Corporation of Bengal Limited. The assessee company and the said Steel Corporation of Bengal Limited were amalgamated as a result whereof the assessee company became entitled to shares of its own in exchange of its holding of shares in Steel Corporation of Bengal Limited. Since the assessee company cannot hold its own shares, a trust was created to hold the shares of the assessee company to which the assessee company became entitled in view of its holding in Steel Corporation of Bengal Limited. In the assessments of the assessee for the assessment years involved in this reference as well as for earlier years, dividends on the shares held by the said trust were included in the assessment of the assessee. The assessee objected to such inclusion on the ground that the shares were held by the trust and not by the assessee company. The said contention which was raised for the earlier assessment years was not accepted by the Tribunal and the entire dividend on the shares held by the trust was included in the assessment of the assessee. Section 80M provides that where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to the whole or 60% of such income as the case may be. It cannot be disputed that in this case the gross total income of the assessee, a domestic company included income by way of dividends from a domestic company. If the gross total income includes any income by way of dividends, the assessee is entitled to the benefit of the deduction as specified in Section 80M. The question whether the assessee company or any other person is the registered holder of the shares from which dividend income is derived is immaterial for deciding whether the assessee company is entitled to deduction in respect of inter corporate dividends under Section 80M. Section 80M does not postulate that in order to become entitled to the deduction under the said section in respect of income by way of dividends earned from the shares, the assessee company must be the registered holder of the shares inrespect of which income by way of dividend is earned. The condition precedent for granting exemption under Section 80M is that there should be income by way of dividends from a domestic company. This has been satisfied in this case. The dividend income has been included and assessed. If the dividend income realised through the trust is assessed, the deduction under Section 80M in computing the total income cannot be denied to the assessee. The assessee company is, therefore, entitled to the benefit of the deduction under Section 80M irrespective of the fact whether the assessee company receives the dividend income through the trust or otherwise.
19. We may also refer to the provisions of Section 80K as they stood at the material time. Before its amendment with effect from April 1, 1968, Section 80K provided that if the total income of an assessee being the holder of any share or shares in any company includes any income by way of dividends paid or deemed to have been paid to him, he would be entitled to the deduction mentioned in Section 80K. After amendment in 1968, the assessee has to be the owner of the shares. The word ' owner ' has been substituted for ' holder ' and ' to him ' had been omitted. Thereafter, in 1970, Section 80K was further amended which gives the benefit of deduction not only to the owner of the shares but also to the person who is chargeable to tax on the income by way of dividends owned by another person. Section 80M, on the other hand, has not imported the concept of either 'holder' or ' owner of the shares '. It only prescribed that the gross total income of a domestic company must include income by way of dividends from a domestic company.
20. The Supreme Court in Cloth Traders (P) Limited v. Additional CIT : 118ITR243(SC) , held that the words ' where the gross total income of an assessee......includes any income by way of dividends from a domesticcompany ' in Section 80M merely prescribe a condition for the applicability of the section, namely, that the gross total income must include the category of income described by the words ' income by way of dividends from a domestic company '. If the gross total income includes this particular category of income whatever be the quantum of such income included, the condition would be satisfied and the assessee would be eligible for deduction of the whole or 60 per cent, of ' such income ', as the case may be.
21. We are not, however, concerned in this case whether deduction under Section 80M should be allowed on the gross dividends or on the net dividends in view of the provisions of Section 80AA.
22. Mr. Moitra has also relied on a decision of the Andhra Pradesh High Court in the case of CIT v. Smt. Batool Begum : 104ITR642(AP) . There, the Andhra Pradesh High Court held that to be entitled to thebenefit of credit of the tax deduction made at source under Section 199 of the I.T. Act, 1961, the assessee has to file a declaration as provided under Rule 30A. There is no finding by the Tribunal that the provisions of Rule 30A of the I.T. Rules, 1962, have been satisfied in this case. In view of the provisions contained in Rule 30A(2), unless the assessee fulfils the conditions prescribed therein, no benefit could be given to the assessee. This contention was never raised before the Tribunal and as such we cannot allow Mr. Moitra to raise this contention before us. Even otherwise we are not concerned herewith the question whether the assessee is entitled to the benefit of the tax credit or not. Under Rule 30A, when the dividend is included in the income of a person other than the registered shareholder, such person would be entitled to the benefit of the tax credit if he fulfils the conditions prescribed under Sub-rule (2) of Rule 30A. In this case, we are only concerned with the question whether the dividend which is included in the total income of the assessee would be eligible for deduction under Section 80M. We have referred to the provisions of Section 199 and Rule 30A only to emphasise that the dividend income is not only assessable in the hands of the registered shareholder but it can be assessed also in the hands of the beneficiary or any other person who may not be a registered holder of the shares. The Additional CIT who passed the order under Section 263 only directed the ITO to withdraw the relief allowed under Section 80M of the Act and to revise the assessment. The Additional Commissioner did not direct exclusion of the dividend income from the assessments. Once the dividend income is included in the assessment and assessed, the assessee is entitled to all the benefits flowing from such inclusion under the relevant provisions of the Act.
23. For the reasons aforesaid, we answer both the questions in this reference in the affirmative and in favour of the assessee.
24. There will be no order as to costs.
Dipak Kumar Sen, J.
25. I agree.