Beneficial ownership controls dividend taxation where shares stand in a karta's name but belong to the Hindu undivided family.

Dividend income from shares held in the karta's name but acquired with Hindu undivided family funds was treated as income of the real owner, not the nominal or registered holder. The text explains that tax attaches to the beneficial owner of income, and that the provisions on deduction at source, deemed dividend distribution, and grossing up only govern the shareholder's limited statutory credit and adjustment. They do not require dividend income to be assessed always in the hands of the registered holder where beneficial ownership lies with the family. Accordingly, income arising from family assets remained taxable in the hands of the HUF.

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Issues: Whether dividend income from shares standing in the name of the karta, but acquired with joint family funds, was assessable in the hands of the Hindu undivided family.

Analysis: For income-tax purposes the governing principle is that tax attaches to the real income and the real owner of that income, not merely to the nominal holder. The provisions dealing with deduction of tax at source, deemed distribution of dividends, and grossing up were held to control only the special benefit of credit and adjustment available to a shareholder under the Act; they did not lay down that dividend income must always be taxed in the hands of the registered holder irrespective of the true ownership of the shares. Earlier authorities distinguishing the position of a registered shareholder for the limited purpose of sections 16(2) and 18(5) were found not to displace the broader principle that, as between the karta and the family, income arising from family assets belongs to the family.

Conclusion: The dividend income from the shares was assessable in the hands of the assessee Hindu undivided family.

Final Conclusion: The reference was answered in favour of the Revenue on the issue of assessability, on the footing that dividend income derived from family funds remained taxable in the hands of the real owner.

Ratio Decidendi: For income-tax purposes, dividend income is assessable in the hands of the real owner of the shares, and the special deeming provisions concerning shareholders do not require taxation of such income in the hands of a merely nominal or registered holder where the beneficial ownership lies elsewhere.

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