MESSRS. HOWRAH TRADING CO., LTD. vs. THE COMMISSIONER OF INCOME-TAX, CALCUTTA

CIVIL APPEAL No. 65/1956Supreme Court1959 INSC 2526 March 1959Bench: 3 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, J.L. KAPUR, M. HIDAYATULLAH11 pages
AI SummaryDismissed

What were the facts?

The assessee, Howrah Trading Co., Ltd., acquired shares through blank transfers but did not register these transfers with the respective companies. Consequently, the shares remained in the names of other persons in the companies' registers. The assessee received dividends on these shares for the assessment years 1944-45 to 1947-48. The assessee claimed that this dividend income should be grossed up under Section 16(2) of the Indian Income-tax Act, 1922, and that it should be allowed credit for tax deducted at source under Section 18(5) of the Act. The Income-tax Officer, the Appellate Assistant Commissioner, and the Appellate Tribunal rejected these claims. The High Court, on reference, also answered the question in the negative. The assessee appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the assessee was not entitled to the benefits of Sections 16(2) and 18(5) of the Indian Income-tax Act, 1922. The Court reasoned that for the purposes of Section 18(5), a 'shareholder' must be a person whose name is entered in the register of members of the company, as per the definition in the Indian Companies Act, 1913. The Court emphasized that while a transferee under a blank transfer may have an equitable right to the dividend from the transferor, the company only recognizes and is liable to the registered member. The Court referred to Section 20 and Section 19A of the Income-tax Act, which clarify that the company's obligations regarding dividend certificates and returns are based on the names entered in the register of shareholders. Therefore, the assessee, not being a registered member, could not be treated as a 'shareholder' for claiming grossing up of dividend income and credit for tax deducted at source. The appeal was dismissed.

What were the issues?

1. Whether the assessee, having acquired shares through blank transfers without registration, is entitled to have the dividend income grossed up under Section 16(2) of the Indian Income-tax Act, 1922. 2. Whether the assessee, in the same circumstances, is entitled to claim credit for tax deducted at source under Section 18(5) of the Indian Income-tax Act, 1922. Assessee's Arguments: The assessee contended that as the dividend income was received by it, and it was the beneficial owner of the shares, it was entitled to the benefits of Sections 16(2) and 18(5). It argued that the term 'assessee' in Section 16(2) and 'shareholder' in Section 18(5) should include a person holding shares through a blank transfer, even if not registered. The assessee relied on cases where the beneficial ownership of dividend was held to vest in the transferee after the transfer deed was executed. Revenue's Arguments: The revenue argued that the benefits of Sections 16(2) and 18(5) are available only to a 'shareholder', which, in the context of the Indian Companies Act, 1913, and the Income-tax Act, refers to a person whose name is entered in the register of members of the company. Therefore, an unregistered transferee, despite having an equitable right, cannot claim these benefits. The revenue relied on various High Court decisions and the interpretation of 'shareholder' in company law.

Which sections of the Income-tax Act were involved?

Section 16(2),Section 18(5),Section 20,Section 19A

AI-generated summary — verify with the full judgment below

l959 March 26. 44S StJPREM:rn COURT R:rnPoR'l'S [1959] Supp. MESSRS. HOWRAH TRADING CO., LTD. v. THE COMMISSIONER OF INCOME-TAX, CALCUTTA (B. P. SINHA, J. L. KAPUR and M. HrnAYATULLAH, JJ.)

Income-tax-Assessee acquiring shares by blank transfcrs- Receipt of dividend on s"ch shares-If assessee entitled to grossing "P of dividend income and to credit for tax deducted at source- Indian Income-tax A,ct, r922 (XI of r922), ss. r6(2) and r8(5).

The assessee acquired shares in~ certain companies under "blank transfers" without getting the transfers registered with the companies and it received dividends in respect of these shares. It claimed-that the dividend income should be grossed up under s. 16(2) Income-tax Act and that it should be allowed credit under s. 18(5) for the tax deducted at source on the dividend in the hands of the companies.

Held, that, the assessee was not entitled to the benefits of ss. 16(2) and 18(5) as its name was not in the register of members of the companies. The benefit of s. 18(5) could only go to a shareholder; and a shareholder in that section meant the same thing as in the Indian Companies Act, 1913, i. e., a "member" having his nam

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