Staged share transfer and dividend taxation: ownership did not pass until full payment, so dividend stayed with the vendors.

Ownership in shares passed only in accordance with the parties' intended staged transfer arrangement, not merely because an irrevocable guarantee was given and the share certificates and transfer forms were held by the guarantor. The agreement linked transfer to instalment payments and reserved the vendors' right to receive dividend until full payment, so the remaining four-fifths of the shares did not pass to the purchasers during the relevant year. On that basis, dividend attributable to the untransferred shares remained referable to the vendors and was not taxable in the hands of the purchasers.

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Issues: (i) Whether the property in the remaining four-fifths of the shares had passed to the purchasers despite the shares and transfer forms being held by the guarantor. (ii) Whether the dividend attributable to that remaining shareholding was taxable in the hands of the purchasers.

Issue (i): Whether the property in the remaining four-fifths of the shares had passed to the purchasers despite the shares and transfer forms being held by the guarantor.

Analysis: Property in goods passes when the parties intend it to pass. The agreement contemplated staged transfer corresponding to payment of instalments, and the vendors retained the right to receive dividend until full payment. The mere furnishing of an irrevocable guarantee and custody of the share scripts and blank transfer forms with the guarantor did not show an immediate passing of ownership in the entire shareholding.

Conclusion: The property in the remaining four-fifths of the shares did not pass to the purchasers during the relevant previous year.

Issue (ii): Whether the dividend attributable to that remaining shareholding was taxable in the hands of the purchasers.

Analysis: Since the purchasers had not become owners of the remaining shares and the vendors had retained the right to receive the dividend until completion of payment, the dividend on the untransferred shares remained referable to the vendors and not to the purchasers.

Conclusion: The dividend attributable to the remaining shareholding was not taxable in the hands of the purchasers.

Final Conclusion: The reference was answered in favour of the assessee, and the tribunal's view that the remaining shares had not been sold outright and the related dividend could not be assessed as the purchasers' income was upheld.

Ratio Decidendi: Where a share sale agreement provides for transfer only upon payment by instalments and the vendors retain the right to dividend until full payment, ownership does not pass merely because share certificates and transfer forms are placed with a guarantor; dividend on the untransferred shares remains taxable in the hands of the vendors.

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