CHAKRAVARTTI, C.J. - (1.) THE question involved in this reference is covered by the decision of the Bombay High Court in Shree Shakti Mills Ltd. vs. CIT, Bombay City, (1948) 16 ITR 187 (Bom) by the decision of the Nagpur High Court in Jaluram Bhikulal Firm of Itwara vs. CIT, Madhya Pradesh, (1952) 22 ITR 490 (Nag), and by a decision of ourselves in Bikaner Trading Co., Calcutta vs. CIT, West Bengal (1953) 24 ITR 419 (Cal). Mr. Mitra, who appears for the assessees, however, wanted to argue the point again. We readily agreed to allow him to do so, because in the case where we had occasion to decide the point, the assessee was not represented. In the next references the same point is involved that Mr. A. K. Sen, who appears for the assessees in that reference, made a request to us that we might defer our judgment till we had heard him. Accordingly, we heard the two reference together and are now able to pronouncement our judgment after having had the benefit of elaborate and careful arguments.
(2.) THE facts of the present case are simple and may be given in the words of the Tribunal. THEy have stated them as follow :-- "THE assessee is a public limited company. It had during the previous year relevant to the asst. yr. 1948-49, received dividend income out of which income amounting to Rs. 24,318 was not grossed up under s. 16(2) and the assessee was not given credit under s. 18(5) for the relevant tax paid by the various companies. THE shares in respect of which this dividend income of Rs. 24,318 was received were held by the assessee-company in blank transfer. THE transfer of these shares had not thus been registered in the name of the assessee-company with the various companies. Thus, the registered shareholders in the books of these companies were some other persons from whom the assessee-company purchased the shares." The contention of the assessees (I shall use the plural number) was that since the amount of Rs. 24,318 was a dividend amount and it was being included in their total income, it had to be grossed up under s. 16(2) of the IT Act for the purposes of such inclusion and they were to be given credit under s. 18(5) of the Act for the sum by which the amount might be increased, as tax paid on their behalf by the companies which had paid the dividend. The IT Authorities repelled that contention on the ground that the assessees, not being registered holders of the shares on which the dividend had been paid, were not entitled to the benefit of ss. 16(2) and 18(5) and, in support of the view taken by them, they relied on the decision of the Bombay High Court to which I have just referred. On behalf of the assessees, reliance was sought to be placed on a subsequent Circular of the Board of Revenue, Circular No. 1 of 1949 dt. the 5th May, 1949, but it was pointed out that while the Circular gave directions for not applying the Bombay decision to certain cases, it expressly excluded the case of persons holding shares on blank transfers without having their names registered. Before the Tribunal, the Bombay decision was sought to be distinguished on the ground that, there, no certificate granted under s. 20 of the Act had been produced, as had been done in the present case, but the Tribunal held that the basis of the decision was that the benefit of s. 18 (5) could be claimed only by a registered shareholder and, therefore, the production of certificates issued under s. 20 of the Act could not take the present case out of the principle of the decision. In due course, the assessees asked for a reference to be made to this Court and the following question was referred :-- "Whether on the facts and in the circumstance of the case, the assessee is entitled to the process of grossing up under s. 16(2) of the IT Act and getting credit under s. 18(5) in respect of the shares held by it in blank transfer."
(3.) IT was broadly contended on behalf of the assessees that since the amount in question was undoubtedly a dividend amount and tax had, in fact, been deducted before it had been paid, which the Revenue would get in due course, it was plainly unjust that the amount should be included in the assessable income of the assessees, and yet they should not be given the benefit of s. 18(5). IT is impossible to say that there is not great force in that contention, but, at the same time, it must be pointed out that there is no equity in matters of taxation. If the Act, on its true construction, be found to have limited the benefit of s. 18(5) to registered shareholders, the Courts must declare such to be the law. The decision of the question depends upon three sections of the IT Act. First comes s. 16(2) which says that "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 an amount as would leave an amount equal to the dividend, if income-tax at the rate applicable to the company were deducted from it. A largest amount, inclusive of the tax paid, is thus to be brought under assessment. Next comes s. 18(5) which says that "any sum by which a dividend has been increased under sub-s. (2) of s. 16 shall be treated as a payment of income-tax on behalf of........the shareholder." Thus, what is added to the assessable income under s. 16(2) is given back under s. 18(5) as credit for tax paid. Lastly, comes s. 49B which furnishes the reason for the credit given under s. 18(5). It says :-- "Where why dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any of the persons specified in s. 3 who is a shareholder of a company which is assessed to income-tax in the taxable territories or elsewhere, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) at the rate applicable to the total income of the company for the financial year in which the dividend has been paid, credited or distributed or is deemed to have been paid,credited or distributed on so much of the dividend as bears to the whole the same proportion as the amount of income on which the company is liable to pay income-tax bears to the whole income of the company." ;