Jagat Narayan, C.J. - (1.) THE following question has been referred by the Tribunal: " Whether the gifts were completed within the meaning of the term in the Gift-tax Act on the date of the delivery of share certificates along with transfer deeds to the donees or on the dates of registration of shares in the names of the donees in the register of the company ? "
(2.) THE facts are these. Smt. Suraj Bai, assessee, executed 3 unregistered gift deeds on November 26, 1956. By the first gift deed she gifted 735 shares of the Maharaja Salt Works Co. Ltd. to her minor grandson, Ram Swarup. THE execution of the gift deed was accompanied by the actual delivery of share certificates of 735 shares and blank transfers. Smt. Parmeshwari Devi accepted the gift on behalf of her minor son, Ram Swarup. By the second gift deed she similarly gifted 710 shares of the aforesaid company to her second minor grandson, Ramesh. THE execution of the gift deed was accompanied by the actual delivery of the share certificates and the blank transfer deed of the respective shares to the donee which was accepted by his mother, Smt. Parmeshwari Devi, who was his natural guardian. By the third gift deed she gifted 1,000 shares of the aforesaid company to her daughter-in-law, Smt. Parmeshwari Devi. THE execution of the gift deed was accompanied by the actual delivery of the share certificates and blank transfer deeds in respect of these shares to the donee. After execution of the aforesaid gift deeds, Smt. Parmeshwari Devi forwarded the share certificates in respect of 2,445 shares to the aforesaid company along with transfer deeds with a request to register the shares in the names of the donees. On July 3, 1957, the assessee executed 3 fresh registered gift deeds confirming gifts made on November 26, 1956, in respect of the aforesaid shares in favour of the same donees. On November 4, 1957, Smt. Parmeshwari Devi forwarded these 3 registered gift deeds to the company. By its letter dated November 25, 1957", the company informed Smt. Parmeshwari Devi that the transfer deeds in favour of her two minor sons were in order. As regards the transfer deed executed by the assessee in her favour, the company pointed out that 700 shares were held in the joint names of the assessee and her son, Shy am Sunder, while the remaining 300 shares stood in her sole name and requested that separate transfer deeds in respect of these two sets of shares should be sent to the company. On April 10, 1958, Smt. Parmeshwari Devi complied with the request of the company and forwarded fresh transfer deeds in respect of two sets of shares. The transfer deed in respect of 300 shares was signed by the assessee and that in respect of 700 shares by the assessee as well as by Shyam Sunder. On February 1, 1959, 735 and 710 shares were registered in the names of Ram Swarup and Ramesh, respectively. Earlier on May 9, 1958, 1,000 shares were registered in the name of Smt. Parmeshwari Devi in the books of the company. On the above facts the Gift-tax Officer held that the gift of 1,000 shares in respect of Smt. Parmeshwari Devi took place in the assessment year 1959-60 while the gift of 1,445 shares in favour of Ram Swarup and Ramesh took place in the year 1960-61, and taxed both the gifts to gift-tax in the respective years. The Gift-tax Act, 1958, came into force with effect from April 1, 1958. The assessee preferred appeals before the Appellate Assistant Commissioner on the ground that the gifts were completed on November 26, 1956, and were not liable to gift-tax. The Appellate Assistant Commissioner accepted the contention of the assessee and allowed the appeals. The revenue preferred appeals before the Tribunal and it was contended before it that the gifts were completed only when the transfers in favour of the donees were registerd in the books of the company. This contention was not accepted by the Tribunal and the appeals were dismissed. On an application made by the revenue the above question was referred to this court. There is overwhelming authority in support of the view taken by the Tribunal that the gifts in favour of the donees were completed on November 26, 1956, when they became equitable owners of the shares. In Maneckji v. Wadilal & Co., AIR 1926 PC 38., it was held that, as soon as the seller hands over share certificates and blank transfers and the buyer accepts them and gives the seller the cheque, the sale is complete and the property passes to the buyer. From that time onwards the seller can only sue the buyer on the cheque or the price of the shares unpaid in respect that the cheque had not been honoured and he cannot sue any transferee from the buyer. The above decision was followed by the Bombay High Court in E. D. Sassoon & Co. Ltd. v. K. A. Patch, [1943] 45 Bom. L.R. 46.. It was held that a share in a joint stock company is capable of equitable assignment and can be the subject of a trust. It was further held that a shareholder who sells his shares in a joint stock company and hands over the share certificates and transfer forms to the purchaser but the company refuses to transfer them, occupies the position of a constructive trustee of the shares for the purchaser. The legal title to the shares still remains in the vendor although the beneficial interest is transferred to the purchaser ; and the vendor must comply with all reasonable directions that the purchaser may give. The purchaser in such a case has the right to control the exercise by the vendor of the right to vote. As trustee of the shares, the vendor is also trustee of all property rights annexed to the shares. He is a trustee not only of the corpus but also of the income. He is a trustee of dividends that he may receive and he must pay them to the purchaser. As he is a trustee of the dividends, he is also a trustee of the right to vote, which is a right to property annexed to the shares.
(3.) THE above decision was relied upon by their Lordships of the Supreme Court in R. Mathalone v. Bombay Life Assurance Co. Ltd., [1954] 24 Comp. Cas. 1; [1954] S.C.R. 117; A.I.R. 1953 S.C. 385. It was held as follows : " On the transfer of shares, the transferee becomes the sole beneficial owner of those shares sold by the transferor, the legal title to which is vested in him. Thus, the relation of trustee and cestui que trust is thereby established between them. THE transferor holds the shares for the benefit of the transferee to the extent necessary to satisfy the demands of Section 94, Trusts Act, 18,82. As the transferee holds the whole beneficial interest and transferor has none, the transferor must comply with all reasonable directions that the transferee may give. In this situation if he becomes a trustee of dividends he is also a trustee of the right to vote because the right to vote is a right to property annexed to the shares and as such the beneficiary has a right to control the exercise by the trustee of the right to vote. THE relationship arises by reason of the circumstance that till the name of the transferee is brought on the register of shareholders in order to bring about a fair dealing between the transferred and the transferee, equity clothes the transferor with the status of a constructive trustee and this obliges him to transfer all the benefits of property rights annexed to the sold shares of the cestui que trust." In Howrah Trading Co, v. Commissioner of Income-tax, [1959] 36 I.T.R. 215; 29 Comp. cAS. 282; [1959] Supp. 2 S.C.R. 448 (S.C.). it was held that it is the right of a transferee of a share to call upon the company to register his name and the entering of the name of the transferee in the register of members relates back to the time when the transfer was first made. In R. Subba Naidu v. Commissioner of Gift-tax, [1969] 73 I.T.R. 794; 39 Comp. Cas. 766 (Mad.). it was held as follows : " The transfer of the interest in the shares from the transferor to the transferee is independent of the requirement of its registration for purposes of the Companies Act as, without an anterior transfer, there can be no question of applying for registration of it. There should first be a transfer properly made of the shares which should then be presented along with the share certificates to the board of directors either by the transferor or transferee for change of registration in respect of them and until such a change is effected in the books of the company, the transferor will continue to be the holder of the shares." In that case the assessee made a gift of certain shares absolutely to his daughter under two settlement deeds dated April 11, 1951, and March 31, 1959. Under the first deed he retained a life interest in the shares, but by the second deed he settled them absolutely on her. "He had neither executed any deed of transfer nor made any request to the company to effect the transfer of the shares to her name. They continued to stand in his name right through and he was enjoying dividends therefrom and paying tax thereon. ;