COMMISSIONER OF INCOME TAX Vs. ANAND KUMAR BINDAL

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Commissioner of Income-tax, U. P., Kanpur.

(2.) THE statement of the case relates to the assessment years 1963-64, 1964-65 and 1965-66 with the relevant previous years ending on March 31 of 1963, 1964 and 1965, respectively. THE assessee is a member of the Hindu undivided family of which Seth Sheo Prasad was the karta. THE family owned certain shares of Lord Krishna Sugar Mills Ltd. (hereinafter referred to as " the company "). THE shares were registered in the name of the karta. By a deed dated July 28, 1962, a partial partition was carried out in the family and shares of the company were divided amongst the various members. By letter dated August 6, 1962, the assessee applied to the company for the transfer in his name of the shares allotted to him. As the shares were under attachment in recovery of certain income-tax dues, the transfer was not immediately effected. THE shares were actually transferred in the name of the assessee on July 2, 1965, after they were released from attachment and after taking from the assessee the necessary indemnity. In the meantime, the company declared and paid dividend on the shares allotted to the assessee. Although in the relevant years the shares did not stand in the name of the assessee, yet the dividend was assessed in his hands as he was the beneficial owner thereof. However, no credit was allowed to him of the tax deducted at source by the company. THE assessee appealed and the Appellate Assistant Commissioner of Income-tax, relying on the decision of the Supreme Court, in the case of Kishanchand Lunidasing Bajaj v. Commissioner of Income-tax, 1966 60 ITR 500 held that the gross amount of dividend in respect of the three years in question should have been assessed as income from other sources without any credit being given of the tax deducted at source and that the Income-tax Officer had wrongly included the net amount of dividend in the assessments. He accordingly enhanced the income from this source by Rs. 3,850, Rs. 1,148 and Rs. 1,405 for the three assessment years respectively, without allowing any credit for the tax deducted at source. THE assessee then appealed to the Income-tax Appellate Tribunal. THE Tribunal allowed the assessee's appeal. It held that the assessee was entitled to the benefit of tax deducted at source. THE Commissioner is aggrieved and at his instance the Income-tax Appellate Tribunal has referred the following question for the opinion of this court :

(3.) A reading of these provisions makes it clear that a beneficial owner of shares of a joint stock company, even though not a registered shareholder, is entitled to the credit for tax deducted at source out of dividends paid on such shares where the shares have been sold or otherwise transferred to him by the registered shareholder and action for registering the transfer of shares in his name is taken in accordance with Section 108 of the Companics Act, 1956. According to the admitted case of the parties the case of the assessee is governed by Clause (ix) of Rule 30A(1), as quoted above. All that has to be seen, therefore, is as to whether action had been taken for the transfer of the shares in the assessee's name, as required by Section 108 of the Companies Act, 1956. That section provides that "a company shall not register a transfer of shares in the company unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or depentures, or if no such certificate is in existence, along with the letter of allotment of the shares......"