Leonard Stone, Kt. , C. J. - (1.)THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922, and the questions, which under order of this Court of March 29, 1945, have been submitted by the Tribunal, are these: (1) Whether on the facts proved there was any evidence to support the conclusion that the money paid for the purchase of 1,245 shares belonged solely to the assessees (2) Whether in a case in which the provisions of Section 23 A have been applied, the proportionate share in the undistributed profits of the company must be taxed in the hands of the shareholders in whose name the shares stood and nobody else ?
(2.)SECTION 23a creates what might be described as an artificial income. It is as follows : (i) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, as reduced [as therein mentioned] he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced [as therein mentioned] shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income :
Only a brief reference need be made to the facts. The company, in whose share capital those 1,245 shares stand, is a private limited company with a total share capital of 2,500 shares of Rs. 100 each, and the assesses and his wife own 2. 480 of the total shares, the shares with which we are concerned, viz. the 1,245 were purchased in 1936 in the joint names of the assessee and his wife. The company did not distribute its profits for the year ending December 31, 1938, and at the annual general meeting of the company, which was held on November 22, 1939, no dividend was declared. The Tribunal, on the question as to the person or persons who is or are assessable to this artificial income under and by virtue of Section 23a has expressed the following opinion : In our opinion, therefore, the term 'shareholder' in Section 23a (1) of the Act means, in the case of joint shareholders, the shareholders whose name stands first in the register in respect of the holding. The assessee whose name stands first must be regarded as the shareholder for the purpose of an assessment in respect of the dividends deemed to be distributed under that section. After all, Section 23a is a section that provides machinery for the purpose of bringing to tax the profits of a company which might otherwise escape assessment by reason of their non-distribution among the shareholders as dividends. It would follow that its provisions must be given effect to consistently with the scheme of taxation in Section 3 which is the main charging section of the Act. The principle of taxation is that the income must be taxed where it is found. The question as it is framed by the assessee is expressed in an abstract form and "we feel some difficulty in answering it. Our opinion, therefore, is that in the circumstances of this case the amount of Rs. 37,554 was rightly included in the petitioner's assessment.

With respect to the members of the Tribunal, I can find nothing in the section which gives any indication that it is the shareholder whose name stands first in the company's register, who is to be regarded as the person on whom the assessment is to be made. Under the section the undistributed portion of the assessable income of the company shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder. Under the General Clauses Act, 1897, the singular includes the plural, and therefore, where a share stands registered in two or more names, it is the registered holders, regarded as an association of persons, who must, in my opinion, be regarded as the "shareholder "and who must be assessed accordingly.

(3.)SECTION 21 of the Indian Companies Act, 1913, is the section which makes the memorandum and articles of association of a company the contract between the company and its shareholders and it is as follows: The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member, his heirs, and legal representatives, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act.
The only relevant articles of the articles of association of this company, with whose undistributed profits this case is concerned, are Articles 106 and 171. Article 106 provides: Where they are joint registered holders of any share any one of such persons may vote at any meeting either personally or by proxy in respect of such shares as if he were solely entitled thereto; and if more than one of such joint holders be present at any meeting personally or by proxy that one of the said persons so present whose name stands first on the Register in respect of such share shall alone be entitled to vote in respect thereof.

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