NATIONAL TRAVEL SERVICES versus COMMISSIONER OF INCOME TAX, DELHI, VIII

Citation: [2018] 1 S.C.R. 336 · Decided: 18-01-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Matter referred to larger bench

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 1 S.C.R.
    NATIONAL TRAVEL SERVICES
v.
COMMISSIONER OF INCOME TAX, DELHI, VIII
(Civil Appeal Nos. 2068-2071 of  2012)
JANUARY 18, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Income Tax Act, 1961:
s.2(22)(e) (as amended in 1988) – Applicability of –
Partnership firm purchased shares in the name of two of its partners
– Whether the firm or the partners are to be treated as shareholders
for the purpose of s.2(22)(e) – Held: The word “shareholder”
occurring in  s.2(22)(e) post amendment, has only to be a person
who is the beneficial owner of shares – One cannot be a registered
owner and beneficial owner in the sense of a beneficiary of a trust
or otherwise at the same time – To state that two conditions have to
be satisfied namely that shareholder must be a registered
shareholder and also be a beneficial owner, is mutually contradictory
and also incorrect – #Ankitech’s case (holding that expression
“shareholder” would continue to mean a registered shareholder
even after the amendment) has wrongly been decided – Therefore
Ankitech’s case needs reconsideration – Matter referred to larger
Bench.
Placing the matter before Hon’ble The Chief Justice of India
for constituting a three-judge Bench, the Court
HELD: 1. The definition of “dividend” as provided u/s.
2(22)(e) of Income Tax Act, 1961, would go to show that the
shareholder referred to in the aforesaid provision would continue
to be a shareholder who is on the register of members of the
Company with one additional feature, namely, that such
shareholder should be a person who has a substantial interest in
the Company.  Admittedly, the aforesaid additional feature would
make no difference to the position of law laid down viz. the
shareholder of a company is the individual who is registered as a
shareholder in the books of the company. [Para 9][341-H; 342-
A]
[2018] 1 S.C.R. 336
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2. However, after amendment of the definition of
“dividend”, after 31.05.1987, a “shareholder” is a person who is
the beneficial owner of shares holding not less than 10% of the
voting power of the Company.  Also, a new category has been
added to the definition by introducing concerns in which such
shareholder is a member or partner and in which he has a
substantial interest.  Explanation (3) of the amended provision
states that “concern” means Hindu Undivided Family, firm,
association of persons, body of individuals, or a Company and
further goes on to state that a person shall be deemed to have a
substantial interest in a concern other than a Company if he is, at
any time during the previous year, beneficially entitled to not
less than 20% of the income of such concern. [Para 12][344-C-
D]
3. The word “shareholder” in both limbs of the definition
u/s. 2(22)(e) would mean exactly the same thing.  This is for the
reason that the expression “such shareholder” in the second
limb would show that it refers to a person who is a “shareholder”
in the first limb.  The whole object of the provision is clear from
the Explanatory memorandum and the literal language of the newly
inserted definition clause which is to get over the two judgments
i.e. in *C.P. Sarathy Mudaliar case and in **M/s Rameshwari Lal
Sanwarmal case.  This is why “shareholder” post amendment,
has only to be a person who is the beneficial owner of shares.
One cannot be a registered owner and beneficial owner in the
sense of a beneficiary of a trust or otherwise at the same time.  It
is clear therefore that the moment there is a shareholder, who
need not necessarily be a member of the Company on its register,
who is the beneficial owner of shares, the Section gets attracted
without more.  To state, therefore, that two conditions have to be
satisfied, namely, that the shareholder must first be a registered
shareholder and thereafter, also be a beneficial owner is not only
mutually contradictory but is plainly incorrect. Also, what is
important is the addition, by way of amendment, of such beneficial
owner holding not less than 10% of voting power.  This is another
indicator that the amendment speaks only of a beneficial
shareholder who can compel the registered owner to vote in a
particular way. [Paras 17, 18][345-G-H; 346-D-E]
NATIONAL TRAVEL SERVICES v. COMMISSIONER OF
INCOME TAX, DELHI, VIII
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SUPREME COURT REPORTS
[2018] 1 S.C.R.
Mathalone v. Bombay Life Assurance Co. Ltd. [1954]
SCR 117 – relied on.
4. #Ankitech’s case, in stating that no change wa

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