CHAKRAVARTTI, C.J. - The question involved in this reference is covered by the decision of the Bombay High Court in Shree Shakti Mills Limited v. Commissioner of Income-tax, Bombay City, by the decision of the Nagpur High Court in Jaluram Bhikulal Firm of Itwara v. Commissioner of Income-tax, Madhya Pradesh, and by a decision of ourselves in Bikaner Trading Co., Calcutta v. Commissioner of Income-tax, West Bengal. Mr. Mitra, who appears for the assessees, however, wanted to argue the point again. We readily agreed to allow him to do so, because in the case where we had occasion to decide the point, the assessee was not represented. In the next reference the same point is involved and Mr. A. K. Sen, who appears for the assessees in that reference, made a request to us that we might defer our judgment till we had heard him. Accordingly, we heard the two references together and are now able to pronounce our judgment after having had the benefit of elaborate and careful arguments.
The facts of the present case are simple and may be given in the words of the Tribunal. They have stated them as follows :-
'The assessee is a public Limited Company. It has during the previous year relevant to the assessment year 1948-49, received dividend income out of which income amounting to Rs. 24,318 was not grossed up under section 16(2) and the assessee was not given credit under section 18(5) for the relevant tax paid by the various companies. The shares in respect of which this dividend income of Rs. 24,318 was received were held by the assessee company in blank transfer. The transfer of these shares had not thus been registered in the name of the assessee company with the various companies. Thus, the registered shareholders in the books of those companies were some other persons from whom the assessee company purchased the shares.'
The contention of the assessees (I shall use the plural number) was that since the amount of Rs. 24,318 was a dividend amount and it was being included in their total income, it had to be grossed up under section 16(2) of the Income-tax Act for the purposes of such inclusion and they were to be given credit under section 18(5) of the Act for the sum by which the amount might be increased, as tax paid on their behalf by the companies which had paid the dividend. The Income-tax Authorities repelled that contention on the ground that the assessees, not being registered holders of the shares on which the dividend had been paid, were not entitled to the benefit of sections 16(2) and 18(5) and, in support of the view taken by them, they relied on the decision of the Bombay High Court to which I have just referred. On behalf of the assessees, reliance was sought to be placed on a subsequent Circular of the Board of Revenue, Circular No. 1 of 1949 dated the 5th of May, 1949, but it was pointed out that while the Circular gave directions for not applying the Bombay decision to certain cases, it expressly excluded the case of persons holding shares on blank transfers without having their names registered. Before the Tribunal, the Bombay decision was sought to be distinguished on the ground that, there, no certificate granted under section 20 of the Act had been produced, as had been done in the present case, but the Tribunal held that the basis of the decision was that the benefit of section 18(5) could be claimed only by a registered shareholder and, therefore, the production of certificates issued under section 20 of the Act could not take the present case out of the principle of the decision.
In due course, the assessees asked for a reference to be made to this Court and the following question was referred :-
'Whether on the facts and in the circumstances of the case, the assessee is entitled to the process of grossing up under section 16(2) of the Income-tax Act and getting credit under section 18(5) in respect of the shares held by it in blank transfer.'
It was broadly contended on behalf of the assessees that since the amount in question was undoubtedly a dividend amount and tax had, in fact, been deducted before it had been paid, which the Revenue would get in due course, it was plainly unjust that the amount should be included in the assessable income of the assessees, and yet they should not be given the benefit of section 18(5). It is impossible to say that there is not great force in that contention, but, at the same time, it must be pointed out that there is no equity in matters of taxation. If the Act, on its true construction, be found to have limited the benefit of section 18(5) to registered shareholders, the Courts must declare such to be the law.
The decision of the question depends upon three sections of the Income-tax Act. First comes section 16(2) which says that '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 an amount as would leave an amount equal to the dividend, if income-tax at the rate applicable to the company were deducted from it. A larger amount, inclusive of the tax paid, is thus to be brought under assessment. Next comes section 18(5) which says that '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.' Thus, what is added to the assessable income under section 16(2) is given back under section 18(5) as credit for tax paid. Lastly, comes section 49B which furnishes the reason for the credit given under section 18(5). It says :-
'Where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any of the persons specified in section 3 who is a shareholder of a company which is assessed to income-tax in the taxable territories or elsewhere, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) at the rate applicable to the total income of the company for the financial year in which the dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed on so much of the dividend as bears to the whole the same proportion as the amount of income on which the company is liable to pay income-tax bears to the whole income of the company.'
Thus, the tax which is to be treated under section 18(5) as paid by the company on behalf of the shareholder is to be deemed under section 49B as paid by the shareholder himself and, understandably, he gets credit for the payment in his own assessment.
It is to be noticed that as regards acquiring the right to the credit, nothing really turns on the provisions of section 18(5) and section 49B. Once a dividend is grossed up under section 16(2), the person, as whole income it is grossed up, must be given the benefit of section 18(5), because the only condition laid down in the section is that the dividend has been increased under section 16(2).
But who is the person which these sections have in view. Section 16(2) describes him simply as the 'assessee'. Section 18(5) describes him as the 'shareholder'. Section 49B describes him as 'a shareholder of a company'. He is thus a shareholder and section 16(2) adds that the dividend is 'paid, credited or distributed to him.' What tests must a person satisfy in order to come under that description
Mr. Mitra contended that the 'shareholder' contemplated by the sections was any holder of a share, whether registered as such or not. He pointed out that the Income-tax Act had used the word 'shareholder' and not the word 'member' and submitted that the two terms were not synonymous. A share, it was said, was movable property under section 28 of the Indian Companies Act and could be transferred by blank transfer forms and when they were so transferred, the transfer became the full owner of the shares, that is to say, a 'shareholder' and as such entitled to receive the dividend declared on the shares. A member of a company, it was further argued, had to be a shareholder of it, but a shareholder was not necessarily required to be a member borne on the register of the company. That he held certain shares was sufficient to make him a shareholder and to entitle him to receive the dividend thereon. The object of the Income-tax Act, it was said, was to tax profits and in construing the word 'shareholder', as used in the Act, it would be proper to hold that the Legislature intended to indicate by that word the person by whom the profits had, in fact, been received.
On the main argument of Mr. Mitra, Mr. Sen took somewhat the same line and gave us the interesting history of how the word 'shareholder' came into the legislation relating to joint stock companies and how it had been replaced by the word 'member'. It appears that in section III of 7 & 8 Vict. 1844 Cap. CX., 'shareholder' was defined as 'any person entitled to a share in a company, and who has executed the deed of settlement, or a deed referring to it.' The rights which a shareholder enjoyed accrued to him on his complying with certain further conditions. Section XXVI of the Act provided that 'no shareholder of any joint stock company completely registered under this Act shall be entitled to receive any dividends or profits, or be entitled to the remedies or powers hereby given to shareholders, until he shall have executed the deed to settlement of the said company, or some deed referring thereto, and also have paid up all instalments or calls due from him, and shall have been registered in the registry office aforesaid.'
It is thus clear that in order to be entitled to receive a dividend a shareholder had to have his name registered as such under the English Act of 1844. Transfers of shares were provided for in section LIV of the Act and it said that subject to the regulations contained in the Act or any deed of settlement relating to the company, shares could be transferred by a deed, a memorial of which was to be entered in a book called 'the Register of Transfers.' Then came the Act of 1862, 25 & 26 Vict., Cap. LXXXIX, which dropped the word 'shareholder' and introduced the word 'member' in section 23, defining it in the same way as section 30 of the Indian Companies Act. Transfers were provided for in Regulation VIII of Table A which was in the same terms as Regulation 18 of Table A of the Indian statute. Mr. Sens contention was that the word 'shareholder' had an ancestry and it would be proper to construe it as used in the Income-tax Act in the old sense of the definition section of the English Act of 1844 under which, in order to be simply a shareholder, it was not necessary to have ones name registered in the books of the company. Even the Indian Companies Act, Mr. Sen contended, used the word 'shareholder' in a sense different from that of the word 'member' and he referred to section 79(1)(e) as an illustration.
I am unable to agree that the Indian Companies Act makes a distinction between a shareholder and a member or that the word 'shareholder' as used in the Income-tax Act, can be construed as meaning merely the holder of a share who may or may not be a member. There can be no question that the Indian Companies Act is framed on precisely the same lines as the English Companies Act, nor that the words 'shareholder' and 'member' have been used in the Indian Act in the same sense as in the parent statute. As to the terms as used in the English Act, their meaning has been given in Palmer in a passage remarkable for its terseness and brevity : 'In the case of a company limited by shares,' observes the learned author, 'the terms member and shareholder are synonymous. A member is a shareholder, and a shareholder is a member.' (See Palmers Company Law, Nineteenth Edition, page 81). Mr. Mitra contended that with reference to the Indian Act, that statement would not be wholly accurate and he referred to the holders of share warrants who were not shareholders, but who might be deemed to be members under section 46 of the Act. That submission, to my mind, has no point in it, because a similar provision occurs in section 112(5) of the English Act and if in spite of it Palmer has stated that the words 'shareholder' and 'member' are synonymous, he has done so for the obvious reason that the holder of a share warrant can only be deemed to be a member if the articles of the company so provide, but he is not really and in fact a member as of right and in the primary sense of the term. Indeed, there are indications in the Indian Act itself from which it is abundantly clear that the expressions 'member', 'shareholder' and 'the holder of a share' have been used in the same sense, meaning persons holding shares in a company and registered as such in the Register of Members. Reference need only be made to sections 49(1) 57, 58, 66A, 78, 138 and 146(1) of the Indian Companies Act. It would be tiresome to refer to the provision of all of them, but I shall refer to some. Section 66A(1) authorises the holder of not less than 10 per cent. of the issued shares of a particular class to apply to the Court to have a variation of their rights cancelled and sub-section (3) of the section provides that the Court may disallow the variation if it is satisfied that it will 'unfairly prejudice the rights of the shareholders of the class represented by the applicant.' It is thus clear that the expressions 'holder of shares' and 'shareholder' have been used in the same sense. Again, section 135 provides that any 'member' of a company shall be entitled to be furnished with copies of the balance-sheet, profit and loss account or the income and expenditure account and the audit reports; and section 146(1) provides that holders of preference shares and debentures shall have the same right to receive the balance-sheets and profit and loss accounts and the reports of auditors and other reports as is possessed by the 'holders of ordinary shares' in the company. There can be no doubt that the expressions 'holder of shares' and 'member' have been used as synonymous. Lastly, section 49(1) authorises a company to make arrangements upon the issue of shares for a difference between the 'shareholders' in the amounts and times of payment of calls on the shares, while section 49(2) authorises the company to receive from 'members' the amount remaining unpaid on the shares held by them, although the same may not have been called up. It is again clear that the words 'member' and 'shareholder' have been used in the same sense. Indeed, it is difficult to conceive how a person can be a shareholder in the true and full sense of the term without being a member of the company whose name is borne on the register, because, to mention only on circumstance, if his name is not borne on the register, the company would not be in a position to make calls on him for the unpaid part of the amount payable on the shares held by him. Section 79(1)(e) which was particularly relied upon by Mr. Sen does not suggest that there can be shareholders whose names are not entered in the register of shareholders. The section is concerned with meetings and votes and clause (e) of sub-section (1) provides that 'any shareholder whose name is entered in the register of shareholders of the company shall enjoy the same rights and be subject to the same liabilities as all other shareholders of the same class.' It is perfectly clear that by the phrase 'shareholders of the same class' unregistered shareholders could not have been meant, because such shareholders could have no concern with meetings of the company and the right of voting at them. What the clause plainly means is that all shareholders of a particular class whose names are entered in the register shall have the same rights and liabilities as between themselves, irrespective of the date of the entry of their names in the register. It is a provision intended to defeat regulations, which are sometimes found to the effect that in order to be entitled to exercise the rights of a shareholder, the holder of a share must have held his share for a certain length of time.
If the terms 'member' and 'shareholder' have the same meaning in the Companies Act, I am unable to hold that the latter term has been used in a different sense in the Income-tax Act. Both Mr. Mitra and Mr. Sen referred us to the position of a person who purchases a share by blank transfer forms and the rights as to the receipt of dividend which such transfer of shares confers on the transferee as against the transferor. Mr. Mitra cited the decisions in Black v. Homersham and In re Wimbush : Richards v. Wimbush and pointed out that, according to those decisions, a transferee of shares acquired the right to the dividends even as respects a period prior to the transfer when the same was declared subsequently, because as it was picturesquely put in the latter of the two cases, he had bought the tree, and with it the fruits ripening on it. Reference was also made to the decision in Bank of India Limited v. Jamsetji A. H. Chinoy and Messrs. Chinoy and Company, for the proposition that what was crucial was not the period in which the dividend was earned, but the date or dates of its declaration. It was lastly pointed out that a transferee of shares under blank transfer forms was entitled to put in his own name even after the death of the transferor and have his name registered with the company, as was held in the case of In the matter of Bengal Silk Mills Co., Ltd.
I do not see that the position as between the transferor and the transferee of shares under blank transfer forms furnishes any answer to the question we have to decide in the present case. When a dividend is distributed, the tax before its distribution is deducted by the company for payment to the Revenue, and the person who, under the Income-tax Act, can claim credit for the payment is the person on whose behalf the company can be treated as having paid it. Obviously, such a person can only be a person whom the company knows to be its shareholder, to whom it allots a share of the divisible fund, from whose share it makes a deduction and for whose benefit it pays it as tax. It is true that under section 28 of the Companies Act, shares are transferable in the manner provided by the articles of a company, but regulation 18 of Table A provides that while a share can be transferred by an instrument of transfer and no deed is required, 'the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of members in respect thereof.' There is no information in the present case as to what the provisions were in the articles of the companies which had paid the dividend amount concerned, but all parties have proceeded on the footing that there was a provision of the nature of regulation 18. Indeed, Mr. Sen stated that he could not think of an ordinary trading company which would not have an article of that kind. It, therefore, follows that an unregistered transferee of shares is not a holder of the shares in the eye of the company and it will not and cannot pay dividends to him and does not make any deduction from any dividend paid to him or pay any tax on his behalf. It is wholly immaterial that a transferee of shares is entitled to fill in his own name and obtain registration of himself as the holder of the shares. Till he has done so, he has no rights as against the company and the company does not deal with him. We had a lengthy argument before us as to the rights of a transferee of shares under blank transfer forms, but I think it will be sufficient if I set out the summary of the law, as given in the standard work of Buckley. The learned author states as follows :-
'Where the articles of association do nor require a deed, but permit transfers to be made by instrument in writing, a transfer in blank carries to the person whose name is subsequently filled in as transferee, not only the equitable, but also the legal interest - meaning, it is conceived, the legal right to call upon the company to register the transfer. For there is no legal title to the shares until registration; or at any rate until all necessary conditions have been fulfilled to give the transferee as between himself and the company a present absolute and unconditional right to have the transfer registered.' (See Buckley on the Companies Acts, Twelfth Edition, page 808).
It is thus clear that although a purchaser of shares under blank transfer forms may acquire the right to the dividend declared thereon after the transfer as against his own vendor, he does not acquire the full legal title to the shares as against the company till his name is registered; and so long as he remains an unregistered purchaser, he does not come into consideration by the company at all as regards either payment of dividend or deduction of tax for his benefit. I can, therefore, see no reason for construing the word 'shareholder', as used in the Income-tax Act, in a sense different from what it bears in the Companies Act. Credit for payment of tax given to a shareholder under section 18(5) presupposes and indeed requires that he should be among the persons between whom the company has distributed the dividend, from the amount payable to whom it has made a deduction and on whose behalf it may be treated as having paid the amount of the deduction as tax. In other words, the section cannot be construed in any sense according with reality, unless the word 'shareholder' is taken to mean a registered shareholder.
Pausing here for a moment, I might point out that a transferee of shares under blank transfer forms whose name is not registered in the books of the company becomes the owner of the shares in a very limited sense. Although for purposes of transfer a share is to be treated as movable property, it is not in fact like just so much chattel, but is bound up inextricably with the company of whose share-capital it is a share and carries certain rights and obligations inseparable from the company. As to the true nature of a share, I can do nothing better than refer to the exposition by Farwell, J., as he then was, in the case of Borlands Trustee v. Steel Brothers & Co., Limited, which has now become almost classical. 'A share,' observed the learned Judge, 'is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with section 16 of the Companies Act, 1862. The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.' It will thus be seen that a share is a share of the share-capital of a particular company and carries with it certain rights and obligations arising out of covenants as between all the shareholders. The purchaser of a share, if he is to become a shareholder in the full sense of the term, must be admitted to the company of the shareholders, if I may use the expression, which he can do only by getting his name registered and thus introducing himself into the circle of persons who, between themselves, have agreed to be members of the company and to conduct its business. It is a mistake to suppose that a share is movable property in the sense of a garment or an article of furniture. As I have pointed out, it is linked up with the company of which it is a share in a very peculiar manner and since the Income-tax Act confers a benefit which is founded on the relationship, not as between the vendor and the purchaser of a share but as between the holder of a share and the company, I think that the purchaser of a share cannot become a shareholder within the meaning of the Income-tax Act unless he gets his name registered. Section 16(2) of the Act, to my mind, makes the intention of the Act clear, because after referring to the assessee it speaks of the dividend 'paid, credited or distributed to him.'
In addition to contending that a shareholder, as contemplated by the Indian Companies Act, was not a registered shareholder, Mr. Sen adopted an alternative line of argument. He contended that assuming that a company paid and could pay dividend only to a registered shareholder, yet when, after an unregistered transfer, the transferor continued to receive dividend on the shares from the company, he received it as a trustee for the transferee and the dividend paid to him was paid to the transferee within the meaning of section 16(2). It was in that form that Mr. Sen attempted to satisfy the expression 'to him', as occurring in section 16(2), in the case of an unregistered transferee of shares. He relied on the decisions in Commissioners of Inland Revenue v. Roberts, and In re Rose : Rose v. Inland Revenue Commissioners. In the first case, two companies were amalgamated and the condition of the amalgamation was that the shareholders of both the companies would transfer their shares to a holding company to be formed for the purpose and would be paid by the allotment of shares in the new company in certain proportions. The transfer was to take effect from the 1st April, 1921. While one of the transferor companies had declared a dividend for the year ending on the 31st March, 1921, the other company, whose financial year was the calendar year, had done so only for the year ended on the 31st December, 1920. It was therefore necessary to make some provision for the dividend which might be declared in respect of the three months between the 31st December, 1920, and the 1st April, 1921. The provision made in the agreement for sale was that the new company would have to account for such dividend to the shareholders of the second transferor company and that the dividend for the three months should be paid to them. The transfer of the shares of the second company was thus expressly ex-dividend. When the company declared a dividend sometime later, the new company, which was then the owner and the registered holder of the shares, wrote to the transferor company to pass on the dividend to persons who were borne on its register as shareholders on the 1st of April, 1921, and the same was done. The question really decided in the case was that the amount of dividend so received by the shareholders of the second transferor company was not a part of the consideration paid for the transfer of the shares and not a capital receipt, but was a revenue or income receipt, because the sale had been ex-dividend and the dividend came to the shareholders as dividend and as nothing else. In the course of his judgment, however, Atkin, L. J., as he then was, made the following observation, apparently on some misapprehension of fact :
'I think,' observed the learned Lord Justice, 'it was a payment which was received by the purchase as a trustee for the seller, that he received it in that capacity as trustee of income for the seller and when he handed it over to the seller, it was part of his income exactly as in the ordinary case of a sale ex-dividend where the purchaser receives income on behalf of the seller and has to account for it.'
As I have pointed out, the new company did not actually receive the dividend, but Atkin, L. J., might have meant that since it was the new company which was the registered holder of the shares on the date on which the dividend was declared, it was that company which had received it in the technical sense, although it had not done so physically. The facts were correctly stated by Lawrence, L. J., who observed that 'if they,' meaning thereby the new company, 'had received it, which, as a matter of fact, they did not, they would have held it as bare trustees for their vendors.' In the second case cited by Mr. Sen, a person transferred 10,000 shares in an unlimited company to his wife and then transferred a further 10,000 shares in the same company to certain other persons as trustees to hold upon the trusts of a settlement. The transfers and the settlement were executed respectively on the 30th March, 1943, and the 5th April, 1943. In order not to be liable to estate duty, it was necessary that the gifts should have been completed before the 10th of April, 1943, and the question was whether they had been so completed in view of the fact that although the relative share certificates had been handed over to the transferees, the transfers were not registered till the 30th June, 1943. It was held that the deceased having done everything in his power by executing the transfers to transfer his legal and beneficial interest in the shares to the transferees, the transferees had become beneficial owners of the shares and between the date of the execution of the transfers and their registration, the deceased could not have asserted any beneficial title by virtue of his position as the registered holder. It was held further that having regard to the form and operation of the transfers, the nature of the property transferred and the necessity for registration in order to perfect the legal title, coupled with the discretionary power in the directors to withhold registration, the deceased was pending registration, in the position of a trustee of the legal title in the shares for the transferees. On the basis of these decisions, Mr. Sen contended that a transferor of shares under blank transfer forms would be a trustee for the transferee in respect of dividends declared and received thereafter and that it ought to be held that the payment of dividend to such transferor would be payment in trust for the transferee and therefore in law a payment to the latter within the meaning of section 16(2).
In my opinion, the cases cited by Mr. Sen have no direct bearing on the question which we have before us. If the question had been whether the amount of the dividend income had been rightly included in the assessable income of the assessees, the decisions would have been strong authorities for holding that it had been rightly included. But, as I have said, the only use which Mr. Sen wanted to make of the case was to utilise the expression of opinion that the transferee in one case and the transferor in the other would be in the position of a trustee for the transferor and transferee respectively and on that basis he argued that the payment of dividend to a shareholder who had sold off his shares to a person who had not got his name registered would be payment to the purchaser.
As I have stated already, in my view, cases dealing with the position as between the transferor and the transferee do not help us in deciding the question we have to deal with in the present case. In the second of the decisions cited by Mr. Sen, the learned Judges of the Court of Appeal made it perfectly clear that they were not deciding any question of rights which an unregistered purchaser of shares would have against the company or what the relationship between the two would in law be. 'If the company had declared a dividend,' observed Evershed, M. R., 'during this interregnum, it is not open to question that the company must have paid that dividend to the deceased. So that vis-a-vis the company, this document did not, and could not operate to transfer to Mrs. Rose the right against the company to claim and receive that dividend.' (See In re Rose : Rose v. Inland Revenue Commissioners). Jenkins, L. J., was even more explicit. His Lordship observed as follows :-
'In my view, in order to arrive at a right conclusion in this case, it is necessary to keep clear and distinct the position as between transferor and transferee and the position as between transferee and the company. It is, no doubt, true that, the rights conferred by shares are all rights against the company, and it is no doubt true that, in case of a company with ordinary regulations, no person can exercise his rights as a shareholder vis-a-vis the company or be recognized by the company as a member unless and until he is placed on the register of members.'
His Lordship then proceeded to deal with the point before him which was a point limited to the transferor and the transferee. The passages which I have extracted from the judgments of the learned Master of the Rolls and the learned Lord Justice are sufficient to make it clear that even after a transfer has been effected by a holder of shares who has done everything in his power to effect it, the company can pay the dividend only to him and he is the only person who can claim and receive that dividend, till the purchaser gets his name registered in the books of the company. The expression 'paid to him' in section 16(2) cannot, therefore, be taken to cover a case of payment to a transferor of shares in trust for the transferee who has not yet got his name registered.
Indeed, it seems impossible to fit in payment of dividend to anyone other than the registered holder with the language used in section 16(2) of the Act. The section refers to the assessee and speaks of 'income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him.' The word 'deemed' does not refer to the payment itself, but only to the year to which the payment is to be attributed and this was conceded by Mr. Sen. The section thus contemplates a person to whom dividend is paid or credited or distributed. It cannot for a moment be argued that any of the three words can refer to a person other than the person contemplated by the remaining two words. Taking the word 'credited' first, it cannot possibly be disputed that it refers to a registered shareholder, because no amount can be credited to a person whose name does not appear in the books of the company. Taking next the word 'distributed', there can again be no doubt that it refers to a registered shareholder, because the company cannot and does not distribute dividend to a person whose name does not appear in the register of shareholders. There remains the word 'paid'. Payment is made to the persons among whom the dividend is distributed and, therefore, the word 'paid' also must be understood to refer to a registered shareholder. Mr. Mitra referred to section 43 of the Indian Companies Act and pointed out that a company did not pay dividend to shareholders or registered shareholders alone, but paid it to others as well, for example, the holders of share warrants. But payment of a dividend to holders of share warrants is specifically provided for by a separate section in the Companies Act. Section 16(2) does not contemplate a holder of share warrants, but contemplates a shareholder, as is apparent from section 18(5) and section 49B, and therefore the only payment we need consider is payment possible under the Companies Act to the holder of a share. In the case of shareholders, payment of dividend by a company to any holder of shares other than registered shareholders is impossible and, therefore, it appears to me that the theory of payment in trust for the transferee will not work, because, as I have shown, the language of section 16(2) is appropriate only to payment or distribution or the giving of credit to a person who is, in fact, registered as a shareholder. It is not without interest to note that section 33 of the Companies Act expressly forbids any notice of any trust expressed, implied or constructive, to be entered on the register or to be received by the registrar.
For the reasons I have given, I am of opinion that the expressions 'assessee' in section 16(2), 'shareholder' in section 18(5) and 'a shareholder of a company' in section 49B contemplate a registered shareholder and that an unregistered shareholder is not entitled to the benefit of those sections.
As I said at the beginning of this judgment, looked at broadly, it does appear somewhat unjust that the individual received by an unregistered transferee should be included in his total income for the purposes of assessment, but at the same time the benefit of section 16(2) and section 18(5) should be denied to him. It is not for Courts to speculate as to the reasons for a particular legislative policy, but it might be that the confusion which would result if unregistered transfers were to be recognized was intended to be avoided. For example, if a particular person holds a block of shares on which he has received dividend in the past and for which he has paid tax, he will be regarded by the Department as still holding the shares so long as his name appears in the register. If he wants to prove that he has, in fact, transferred his shares, he may find it extremely difficult to do so, because having been transferred on blank transfer forms, the shares may have, in the mean-time, passed through many hands and travelled a long distance away from the original transferor. In those circumstances, it would be extremely difficult to come to a right decision on the contention of the registered holder of the shares. Again, when shares have passed from hand to hand under blank transfer forms, a claim under section 18(5) may be made not only by the person who is holding the shares at the time, but also by an intermediate holder who had received some dividend in the past when he was holding the shares. It appears to me that it will be by no means an easy task to carry out the process of assessment when such claims in respect of the same shares are made by a succession of unregistered holders. On the other hand, the obvious injustice of taxing an amount which is, in fact, dividend income and withholding from it the benefits contemplated by the Act cannot be ignored. Since transfers under blank transfer forms are permitted by law and since it is of the essence of the dealings in the stock exchange that such transfers should take place, it seems desirable and even necessary that a suitable adjustment in regard to the matter of taxation should be undertaken and made by legislation. But till such legislation comes to be undertaken, the Courts must declare the law as it is under the present Act.
For the reasons given above, the answer to the question referred must, in my opinion, be in the negative.
The Commissioner of Income-tax, West Bengal, will have his costs of the reference.
LAHIRI, J. - I agree.
Reference answered accordingly.