Dividend taxability follows real ownership; grossing-up limits do not prevent assessment in the hands of the beneficial owner.

Dividend income from shares standing in the karta's name but beneficially owned by a Hindu undivided family is chargeable in the hands of the real owner under the Indian Income-tax Act, 1922. Section 16(2) regulates the timing of inclusion and the grossing-up mechanism for dividends, but it does not create an exemption or confine taxability to the registered shareholder. The inability to obtain grossing up or credit for tax deducted at source does not defeat assessment where beneficial ownership is with the family. Earlier grossing-up and deemed-distribution decisions were held not to bar taxation in the hands of the real owner.

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Issues: Whether dividend income from shares standing in the name of the karta but beneficially belonging to a Hindu undivided family was assessable in the hands of the family, and whether the inability to obtain grossing up under the dividend provisions prevented such assessment.

Analysis: Under the Indian Income-tax Act, 1922, total income is charged under section 3 and includes income accruing or received by the person to whom it belongs under section 4. Section 16(2) is a processing provision dealing with the year of inclusion of dividend and the grossing up mechanism; it does not create an exemption from chargeability or confine dividend taxability only to the registered shareholder. The scheme of the Act allows dividend to be assessed in the hands of the real owner of the shares, though grossing up and credit for tax deducted at source are available only where the registered holder is also the real owner. Earlier decisions on grossing up and deemed distribution under section 23-A did not lay down that dividend can be taxed only in the name of the registered shareholder.

Conclusion: The dividend income was assessable in the hands of the Hindu undivided family, and the contention that only the registered shareholder could be taxed was rejected.

Final Conclusion: The appeal failed because the dividend belonged for tax purposes to the real owner of the shares, and the absence of grossing-up entitlement did not defeat the charge to tax.

Ratio Decidendi: Dividend income is taxable in the hands of the real owner of the shares; section 16(2) regulates grossing up and timing of inclusion but does not limit chargeability to the registered shareholder.

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