An equitable owner of shares is not a shareholder within the meaning of Sections 16(2) and 18(5) of the Income Tax Act.

1. The Income Tax Appellate Tribunal has referred the following question for our opinion: Whether in the circumstances of the case, is the Assessee entitled to the benefits of Sections 16(2) and 18(5), Income Tax Act, in respect of the sum of Rs. 5,086/-?

2. The Assessee had purchased certain shares but did not get his name registered in the book of the company. In the assessment year 1948-49 he returned the incomes from dividend on these shares and produced the relevant 'dividend certificates'. As the shares did not stand in the name of the Assessee but others persons, the Income Tax Officer did not treat this income as income from dividends & did not grant the relief under Section 16(2) and Section 18(5), Income Tax Act. The receipt was treated as income from other sources. This order was confirmed by the Appellate Assistant Commissioner and the Appellate Tribunal.

3. Under Section 3(1) the total income of any previous year of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in British India in such year by or on behalf of such person. Section 16(2) provides: 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 amount as would, if Income Tax (but not super-tax) at the rate applicable to the total income of a company for the financial years in which the dividend is paid, credited or distributed or deemed to have been paid, credited, or distributed, were deducted therefrom, be equal to the amount of the dividend.

This is what is known as grossing up dividends, and the amount by which the income from dividend is increased under this section is treated as tax paid on behalf of the Assessee. That is Section 18(5) which, so far as it is material for this case, runs: ...any sum by which a dividend has been increased tinder Sub-section (2) of Section 16, shall be treated as a payment of Income Tax...on behalf...of the share-holder...and credit shall be given to him therefore in the assessment, if any, made for the following year under this Act.

Sections 48(3) and 49B were also referred to by the learned Counsel for the assersee. Under the latter Section if the income from dividend is included in the total income of a shareholder, he shall be deemed in respect of such dividend himself to have paid the Income Tax though the tax on this income has in fact been paid by the company which has distributed that dividend. Section 48(3) is not relevant. It says that where an income of one person is included under any provision of the Act in the total income of any other person, such other person only shall be entitled to a refund under the Section in respect of such income. The sum in question is not the income of any other person which under the provisions of the Act is included in the total income of the Assessee.

4. From the foregoing provisions it is clear that the person who is entitled to the benefit of the Income Tax paid by a company on the dividend distributed by it is the share-holder. Relying on - Shri Shakti Mills Ltd. v. Commissioner of Income Tax, 1948 AIR(Bom) 394 (A), the Tribunal has held that, "share-holder" mentioned in Section 18(5) of the Act is a person who owns shares and who is shown as a share-holder in the register of the company. The word "share-holder" is not denned in the Act or in the Companies Act. Under the Companies Act the subscribers to the memorandum of a company and every other person who agrees to become a member of the company and whose name is entered in the register of members shall be a member of the company. As every company incorporated under the Companies Act is not limited by shares, a more comprehensive word, namely, "member" was used. But where a company is limited by shares, the terms "member" and "share-h