Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1964 Supreme(SC) 225

SUPREME COURT OF INDIA
22nd September 1964
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
1.Ramesh R. Saraiya (In C. A. Nos. 704, 706, 713 of 1963), 2. Bharat Kumat R. Saraiya (In C.A. No. 707 of 1963), 3. Mrs. Padmavati R. Saraiya and other 711 of 1963), 4. Dr. Pratap R. Saraiya (In C. A. No. 714 of 1963), 5. The Commissioner of Income-tax, Bombay City I (In C. A. Nos. 705, 708, 712 and 715 of 1963), Appellants
Versus
1. The Commissioner of Incometax, Bombay City I (In C. A. Nos. 704, 706, 707, 709, 710, 711, 713 and 714 of 1963), 2. Ramesh R. Saraiya (In C. A. No. 705 of 1963), 3. Bharat Kumar R. Saraiya (In C. A. No. 708 of 1963), 4. Mrs. Padmavati R. Saraiya and others (In C.A. No. 713 of 1963), 5. Dr. Pratap R. Saraiya (In C. A. No. 715 of 1963), Respondents.
Civil Appeals Nos. 704 to 715 of 1963.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate (Mr. T. A. Ramachandran, Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and co., with him), for Appellants (In C. A. Nos. 704, 706, 707, 709, 710, 711, 713 and 714 of 1963) and Respondents (In C. As. Nos. 707, 708, 713 and 715 of 1963); Mr. S. V. Gupte, Additional Solicitor General of India (Mrs. R. Ganapathy Iyer and R. N. Sachthey Advocates, with him), for Appellants (In C. A. Nos. 707, 708, 712 and 715 of 1963) and Respondents (In C. A. No. 704, 706, 707, 709, 710, 711, 713 and 714 of 1963).

Advocates:
A.V.VISHWANATHA SASTRI, CO., J.B.DADACHAN, O.C.MATHUR, R.N.SACH, Ravindra Narayan, S.R.GANAPATHY IYER

The Pakistan portion of the dividend income forms part of the assessee's total income as defined under Section 2(15) of the Indian Income-tax Act, 1922, and each Dominion is entitled to assess an assessee on the total income in the normal way but has to allow an abatement subject to the conditions mentioned in the Indo-Pakistan Agreement being satisfied.

Headnote:
INCOME TAX - Dividend income - Pakistan portion of dividend - Whether forms part of assessee's total income - Whether assessee entitled to relief under Indo-Pakistan Agreement - Whether dividend declared on 14-10-1952 is includible in assessee's total income for assessment year 1953-54.
Fact of the Case:

Assessee, a shareholder in Narandas Rajaram Ltd., received dividend income from the company, a portion of which was attributable to the profits of the company accrued in Pakistan. The Income-tax Officer included the entire dividend income in the assessee's total income, including the Pakistan portion. The assessee challenged the inclusion of the Pakistan portion of the dividend income, claiming relief under the Indo-Pakistan Agreement. The High Court answered the questions partly in favor of the assessee and partly in favor of the Department.
Finding of the Court:

The Supreme Court held that the Pakistan portion of the dividend income formed part of the assessee's total income as defined under Section 2(15) of the Indian Income-tax Act, 1922. The Court interpreted Section 49AA of the Act and the Indo-Pakistan Agreement and concluded that each Dominion was entitled to assess an assessee on the total income in the normal way but had to allow an abatement subject to the conditions mentioned in the agreement being satisfied. The Court further held that the dividend declared on October 14, 1952, was not includible in the assessee's total income for the assessment year 1953-54 as it was not credited or paid within the meaning of Section 16(2) of the Income-tax Act.
Issues: 1. Whether the Pakistan portion of the dividend income forms part of the assessee's total income? 2. Whether the assessee is entitled to relief under the Indo-Pakistan Agreement? 3. Whether the dividend declared on October 14, 1952, is includible in the assessee's total income for the assessment year 1953-54?
Ratio Decidendi: 1. The Supreme Court held that the Pakistan portion of the dividend income formed part of the assessee's total income as defined under Section 2(15) of the Indian Income-tax Act, 1922, as the assessee was a shareholder in the company and the dividend was declared out of the profits of the company. 2. The Court interpreted Section 49AA of the Act and the Indo-Pakistan Agreement and concluded that each Dominion was entitled to assess an assessee on the total income in the normal way but had to allow an abatement subject to the conditions mentioned in the agreement being satisfied. The Court held that the assessee was not entitled to relief under the Indo-Pakistan Agreement as he had not produced a certificate of assessment in the other Dominion within the prescribed period. 3. The Court held that the dividend declared on October 14, 1952, was not includible in the assessee's total income for the assessment year 1953-54 as it was not credited or paid within the meaning of Section 16(2) of the Income-tax Act. The Court observed that the dividend was not credited to any separate account of the assessee, so that he could, if he wished, draw it.
Final Decision: The Supreme Court dismissed all the appeals. All the parties were directed to bear their own costs in the Court.

Judgment

SIKRI, J. : This judgment will dispose of 12 appeals from the judgments of the High Court of Bombay, dated March 17, 1958 whereby the High Court answered the questions referred to it partly in favour of the assessee and partly in favour of the Department. The four questions answered by the High Court are :

1. Whether the initiation of action under S. 34 for the purpose of bringing to tax the net dividend income of Rs. 579 (suitably grossed) was valid?

2. Whether the said "portion of the dividend income" form s part of the assessed total income as that term is defined in S. 2 (13) of the Indian Income-tax Act. 1922?

3. Whether having regard to the provision of the Indo-Pakistan Agreement, the assessee is entitled to any relief on the said "P. portion of dividend income?

4. D. Whether the other moiety of the dividend of Rs. 1,71,992 declared by the Company on 14-10-1952 is properly includible in the total income of the assessee of the previous year S. Y.2008 for the assessment year 1953-54?"

The figures in these questions are in respect of Shri Purshottamdas Thakurdass.)

2. In C. A. 709/63 and C. A. 713/68 questions 1, 2 and 3 arise. Only questions 2 and 3 arise in C. A. 710/63, C. A. 711/63 C. A. 704/63, C. A. 707/63, C.A. 714/63 and C. A. 706/63, Question D arises in C. A. 712/63, C. A. 705/63, C. A. 708/63, C. A. 712/63 and C. A. 715/63. The appeals involving question D are by the Commissioner of Income-tax and appeals involving questions 1 to 3 are by assessees.

3. It will be convenient to give the facts in the case of the assessee, the late Shri Purshottamdas Thakurdass, hereinafter referred to as assessee A . He was a shareholder in Narandas Rajaram Ltd., which carries on business both in India and Pakistan. Profits accused to it both in India and Pakistan. The company declared dividend out of the above profits. In the case of assessee A, the portion of the dividend attributable to the profits that accrued in Pakistan amounted to Rs. 2,722 for the assessment year 1949-50. On May 20, 1952, the I.T.O. included this sum of Rs. 2.722 in the total income but held that no income tax or super-tax was payable in respect of this amount. The Income-tax Officer reopened the assessment of 1949-50 because assessee A was a shareholder in Industrial Corporation Ltd., and an order had been passed under S. 23 A of the Indian Incometax Act. 1922 (hereinafter referred to as the Act) in respect of this Corporation. As a result of this order, Rs. 579 was deemed to have accrued to him. But in his reassessment order, dated January 17, 1955, the Income-tax Officer brought to charge not only the said Rs. 579 but also the said sum of Rs. 2,722, i.e., the Pakistan portion of the dividend received from Narendass Rajaram Ltd. The Appellate Assistant Commissioner upheld the assessment order both in respect of Rs. 579 and Rs. 2,722. The Appellate Tribunal also upheld the order. The Appellate Tribunal then referred the first three questions to the High Court but refused to refer the following question:

"Whether on the facts and circumstances of the case, the relief allowed in the assessment under S. 23 (3) on that portion of dividend income from Narandas Rajaram and Co. Private Ltd., which is attributable to the income of the Company arising in Pakistan can be withdrawn while making re-assessment under S. 34(1)(b)?"

4. Assessee A took out a notice of motion for a reference of the said question.

5. The High Court, by its judgment dated March 17, 1958, answered the three questions against the Assessee. The High Court also directed the Appellate Tribunal to refer the above question, hereinafter to be referred to as the "Supplementary question" which the Appellate Tribunal had declined to refer, on the Appellate Tribunal referring the said question, the High Court by its judgment dated April 14, 1960 answered the question in favour of the assesse.

6. On February 7, 1961, the High Court granted the necessary certificate to Assessee A . The Commissione

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1964 Supreme(SC) 225

Cases Referred (1)