Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Open DEMAT Account with in 24 Hrs and start investing now!
« From the Courts »
Open DEMAT Account in 24 hrs
 Inordinate delay in income tax appeal hearings
 Income Tax leviable on Tuition Fee in the Year of Rendering of Services: ITAT
 Supreme Court invoked its power under Article 142 of Constitution to validate notices issued under section 148 as notices issued under section 148A. However the same shall be subject to amended provisions of section 149.
 ITAT refuses to stay tax demand on former owner of Raw Pressery brand
 Bombay HC sets aside rejection of refund claims by GST authorities
 [Income Tax Act] Faceless Assessment Scheme does not take away right to personal hearing: Delhi High Court
 Rajasthan High Court directs GST Authority to Unblock Input Tax Credit availed in Electronic Credit Ledger
 Sebi-taxman fight over service tax dues reaches Supreme Court
 Delhi High Court Seeks Status Report from Centre for Appointments of Chairperson & Members in Adjudicating Authority Under PMLA
 Delhi High Court allows Income Tax Exemption to Charitable Society running Printing Press and uses Profit so generated for Charitable Purposes
 ITAT accepts Lease Income as Business Income as Business Investments were mostly in nature of Properties

Twisting and texturising of POY, amounts to manufacturing- entitled for deduction under Section 80IA of the Income Tax Act
April, 05th 2008

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL (L) NO.2214 OF 2006

The Commissioner of Income-tax
Central-II, Ayakar Bhavan, M.K. Road,
Mumbai-400020 Appellant
Versus
M/s. Aatur Holdings Pvt. Ltd.,
32, Madhuli, ABN Road, Opp. Nehru Centre,
Worli Mumbai-400018 Respondents

Mr.P.S.Sahadevan for the appellant.
Mr.A.K.Jasani for the respondents.

Coram : F.I.Rebello & R.S.Mohite,JJ

(i) Whether on facts and in the circumstances of the case and in law, the ITAT was right in law in holding that the dejure owner of the shares alone is entitled to the dividend declared by a company, though the assessee company might be defacto owner of shares but had no right to receive the dividend from the company unless it is the registered shareholder of the company?
(ii) Whether on facts and in circumstances of the case, the ITAT was right in law in holding that the dividend of Rs.16,84,150/-has not accrued to the assessee and thereby holding that such dividend income could not form part of the total income of the assessee ?
(iii) Whether on facts and circumstances of the case, the ITAT was right in law, in accepting the assessees submission, that even though the amounts were paid for acquiring the shares, shares have not been delivered to the assessee company and the change in ownership of the shares have not been registered and notified and therefore the assessees name did not appear in the share registers of the respective companies on the record date and therefore, it could not have received the dividend at all ?

J U D G M E N T
Per : F.I. Rebello, J

1. The revenue has preferred this appeal on the following questions :­

i) Whether on facts and in the circumstances of the case and in law, the ITAT was right in law in holding that the dejure owner of the shares alone is entitled to the dividend declared by a company, though the assessee company might be defacto owner of shares but had no right to receive the dividend from the company unless it is the registered shareholder of the company?

ii) Whether on facts and in circumstances of the case, the ITAT was right in law in holding that the dividend of Rs.16,84,150/-has not accrued to the assessee and thereby holding that such dividend income could not form part of the total income of the assessee ?

iii) Whether on facts and circumstances of the case, the ITAT was right in law, in accepting the assessees submission, that even though the amounts were paid for acquiring the shares, shares have not been delivered to the assessee company and the change in ownership of the shares have not been registered and notified and therefore the assessees name did not appear in the share registers of the respective companies on the record date and therefore, it could not have received the dividend at all ?

2. This appeal is in respect of A.Y.1994-95. Against the order of the A.O. the assessee preferred an appeal before the CIT (Appeals) Central-IV, Mumbai. By order dated 21.3.2002 the appeal preferred by the assessee was partly allowed. One of the issue was the addition of an amount of Rs.16,84,150/-on account of dividend income. The shares belonged to a notified person and were/are in the custody of the Special Court. Some of the shares, it appears, had not been received by the notified party. The learned Commissioner (Appeals) came to the conclusion that if shares are not registered in the name of the notified party, the dividend income on such shares has to be received by the registered shareholders only.

 Revenue aggrieved by the order of the Commissioner (Appeals), preferred an appeal before the ITAT. On the issue of taxability of the dividend in the hands of the assessee, the learned Tribunal relied on orders of co-ordinate benches, which had taken a view that such dividend in the hands of the owners which are not registered in his name in the books of the company could not be assessed as income in hands of the assessee and accordingly dismissed the appeal. It is this order which is subject matter of the present appeal.

3. On behalf of the revenue, it is submitted by the learned Counsel that as the assessee has paid the consideration, for all purposes they are the owners of the shares and consequently the dividend ought to be assessed in the hands of such a person. On the other hand on behalf of the assessee, it is submitted that the shares are not registered in their name in the books of the company and the dividend has been paid to the person in whose name the shares were registered. It is therefore, submitted that this cannot be income in the hands of the assessee and consequently no fault can be found with the orders of either ITAT or the Commissioner (Appeals).

4. To consider the contention, we shall first refer to the provisions of Section 206 of the Indian Companies Act. The relevant portion of which reads as under :­
" 206. (1) No dividend shall be paid by a company in respect of any share therein, except­

(a) to the registered holder of such share or to his order or to his bankers ; or

(b) in case a share warrant has been issued in respect of the share in pursuance of section 114, to the bearer of such warrant or to his bankers."

 A perusal therefore, of the said section would mandate that the dividend must be paid to the registered holder of such share or to his order or to his bankers.

5. Similarly, under Section 27 of the Securities Contracts  (Regulation)  Act,  1956  (hereinafter  referred  to  as  the "Security Contract  Act")  the  relevant  provision is section 27(1), which reads as  under :­

27(1) It shall be lawful for the holder of any security whose name appears on the books of the company issuing the said security to receive and retain any dividend declared by the company in respect thereof for any year, notwithstanding that the said security has already been transferred by him for consideration, unless the transferee who claims the dividend from the transferor has lodged the security and all other documents relating to the transfer which may be required by the company with the company for being registered in his name within fifteen days of the date on which the dividend became due."

 It is thus provided that the person in whose name the securities appear in the books of the company issuing the said securities, is entitled to receive and retain any dividend declared by the company, notwithstanding that the said security has already been transferred by him for consideration, unless the transferee who claims the dividend from the transferor has lodged all the documents which must be required by the company for the registration. In the event this has been done, then section 27(2) (b) reserves the right of such a transferee to enforce against the transferor or any other person his righ, if any, in relation to the transfer where the company has refused to register the transfer of  the  security in the name of the transferee.  It is thus clear that under this provision also it is the registered shareholder alone who would be entitled to receive the dividend subject to the limitation as set out under section 27(1) and 27(2).

6. Learned Counsel for the assessee has also drawn our attention to the Accounting Standard (AS) 9 to contend that once there be an accounting standard as noted by the Supreme Court in Challapalli Sugars Ltd., V/s. C.I.T. (S.C.) reported in 98 ITR 167 in the absence of any other statutory provision the accountancy standard should be accepted. In the instant case in so far as revenue arising from dividend income is concerned, the accounting standard sets out as under :­

"13. Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends should only be recognised when no significant  uncertainty  as  to  measurability  or collectability  exists.  These  revenues  are  recognised on the following bases :

(i) Interest on a time proportion basis taking into account the amount outstanding and the rate applicable.
(ii) Royalties on an accrual basis in accordance with the terms of the relevant agreement.
(iii) Dividends from when the owners right investments in to receive payment is shares established.

Nothing has been brought to our attention to show that under the provisions of the Companies Act and the provisions of the Securities Contract Act that there is any other standard or statutory rules under the Income-tax Act by which such dividend can be taxed in the hands of the assessee.

7. The other aspect of the matter which needs to be considered is that the burden of proving that an amount was taxable because it was received in the year of account lies upon the department. This proposition has been reiterated in CIT V/s. Bikaner Trading Co. Ltd., reported in 78 ITR 12. Income of the assessee has to be received by the assessee as income tax is levied on income. For this purpose we may refer judgment of the Supreme Court in CIT V/s. M/s. Shoorji Vallabhadas & Co. reported in 46 ITR 144 which was reiterated in Godhra Electricity Co. Ltd., V/s. CIT reported in 225 ITR 746. The Supreme Court summed up the law as under :

" Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise."

8. It is thus clear that merely because a person may have purchased or in receipt of shares, in the absence of the share being registered in his name in the books of account of the company, such a person is not entitled to receive the dividend. The dividend has to be paid by the company in the name of the registered shareholders and it is the registered shareholders alone who can claim the dividend under Section 27 of the Securities Contract Act. On the facts on record, the A.O. in respect of the shares as reflected in the balance-sheet has shown it under four heads :­

(a)  Non delivered shares ;
(b)  Shares handed over to the Custodian but  remaining to be registered ;
(c)  Shares forming a part of Shri Harshad S.Mehtas  affidavit in the case of Benami shares ;
(d)  Shares which are lost or stolen.

 The A.O. has further set out that in respect of all these categories the ownership of the assessee has not been recognised by any person or any authority. The A.O. has recorded finding that dividend income has not been received by the Custodian in respect of the shares referred to above. The dividend also has been received by some other person. There is also nothing brought on record to indicate that the assessee in terms of section 27(1) of the Securities Contract Act has lodged the shares for transfer.

9. Considering these circumstances, in our opinion, we find no reason to interfere with the findings recorded by the Commissioner (Appeals) and as confirmed by the CIT. The questions of law therefore, as raised would not arise and consequently, appeal dismissed.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2024 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting