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HIGH COURT OF CALCUTTA
Sankar Prasad Mitra, A. N. Sen
COMMISSIONER OF INCOME-TAX - Appellant
Versus
CLIVE INSURANCE CO. LTD. - Respondent
Income-Tax Reference 138 Of 1967
Decided On : MAY 11, 1971
Whether the sum deducted from the amount of dividend payable to the assessee constitutes payment of income-tax by the assessee by deduction or otherwise in accordance with the law of U. K. on the said dividend income received by the assessee? Held yes.
Fact of the Case:
The assessee is a company resident in India. The assessee derives income from its investments in U. K. The assessment year under reference is 1960-61, the relevant previous year being the calendar year 1959. During the relevant period the assessee earned income by way of dividend and interest from its investments in U. K. In the assessment made in the year 1960-61 the Income-tax Officer did not in the first place grant any relief to the assessee in respect of the income derived from its investments in U. K. The assessee had thereafter written to the Income-tax Officer for necessary relief under Section 49d of the Income-tax Act, 1922, in respect of the income received by the assessee by way of dividend and interest on its investments in U. K. The assessee had thereafter submitted to the Income-tax Officer a certificate which was given to the assessee by the company and the said certificate reads: "I hereby certify that the income-tax on the profits of the income, of which profits this dividend forms a portion, has been or will be duly paid to the proper officer for the receipt of taxes. This voucher will be accepted by the inland revenue authority as proof of the deduction of the tax in claiming the exemption from or return of income-tax. H. E. Lofthouse, secretary."
Finding of the Court:
The sum deducted from the dividend income of the assessee constitutes payment of income-tax by deduction by the assessee on the assessee's dividend income in U. K. under the law prevailing in U. K.
Issues: Whether the sum deducted from the amount of dividend payable to the assessee constitutes payment of income-tax by the assessee by deduction or otherwise in accordance with the law of U. K. on the said dividend income received by the assessee?
Ratio Decidendi: The sums deducted from the dividend income of any member under Section 184 shall constitute payment of income-tax by deduction by the member on the dividend income. This position is made clearer still by judicial pronouncements. The decisions, to which we have earlier referred and the observations which we have already quoted, go to show, in our opinion, that the dividend income in U. K. enjoys a peculiar position in the sphere of taxation. When paid by a company out of its profits which have already been taxed in the hands of the company which in law is liable to assessment and to pay income-tax on its gains and profits, the dividend is not considered to be a separate income in the hands of the members for the purpose of any further charge to income-tax in their hands. The revenue authority after having received the tax from the company on its profits does not concern itself any longer as to what the company does with its profits and in the event of the company choosing to distribute the surplus profits or any part thereof after taxation amongst its members by way of dividend, the revenue is no longer interested in the said dividend which is regarded as "franked by the payment by the company of income tax on its profits or gains" (to quote the words of Lord Macmillan in the case of Inland Revenue Commissioners v. Cull). When the company exercises the authority conferred on it by Section 184 and deducts tax from the dividend payable to its member, the tax, so deducted from the dividend income of the member by the company under the statutory authority, is considered to be payment of income-tax by deduction by the member and treated and recognised as such by the revenue under the law and system of taxation prevailing in U. K. and it is essentially on this basis that relief and refund inappropriate cases by the revenue. authority are given to the members in respect of the sums deducted as tax by the company from such dividend income, notwithstanding the fact that the sums deducted by the company are not made over to the revenue and are retained by the company itself.
Final Decision: Answered in the affirmative, in favour of the assessee.
( 1 ) A question of some importance relating to the applicability of Section 49d of the Indian Income-tax Act, 1922, in the matter of granting relief to the assessee in respect of the dividend received by the assessee on its investment in shares in joint stock companies in England arises in this reference made under Section 66 (1) of the said Act by the Tribunal at the instance of the department.
( 2 ) THE question referred by the Tribunal is :"whether, on the facts and in the circumstances of the case, the assessee could be said to have paid income-tax in U. K. by deduction or otherwise in respect of the net dividends of Rs. 15,266 so as to be eligible for the relief contemplated by Section 49d of the Indian Income-tax Act, 1922?"
( 3 ) TWO main contentions which have been urged and which fall for consideration in the instant reference, are :" (1) Whether the sum deducted from the amount of dividend payable to the assessee constitutes payment of income-tax by the assessee by deduction or otherwise in accordance with the law of U. K. on the said dividend income received by the assessee? (2) Whether in view of the provisions contained in Explanation (iii) in the said Section 49d, the assessee can claim any relief under the said section before actual assessment of the assessee in U. K. ?"
( 4 ) IT has also to be noted that a preliminary objection has been raised on behalf of the assessee as to the competence of the present reference.
( 5 ) FOR a proper appreciation of the contentions raised, it is necessary to consider the relevant facts. The facts material for the purpose of this reference appear from the relevant records and may be briefly indicated. The Clive Insurance Company Ltd. , the assessee herein, is a company resident in India. The company carries on the business of general insurance. The assessee also derives income from its investments in U. K. The assessment year under reference is 1960-61, the relevant previous year being the calendar year 1959. During the relevant period the assessee earned income by way of dividend and interest from its, investments in U. K. In the assessment made in the year 1960-61 the Income-tax Officer did not in the first place grant any relief to the assessee in respect of the income derived from its investments in U. K. The assessee had claimed such relief under Section 49d of the Income-tax Act, 1922, in respect of the income received by the assessee by way of dividend and interest on its investments in U. K. The assessee had thereafter written to the Income-tax Officer for necessary relief under the said section and the Income-tax Officer made an order under Section 35 of the Indian Income-tax Act, 1922, granting relief to the assessee only in respect of the income earned by way of interest by the assessee on its U. K. securities. The Income-tax Officer,' however, did not give any relief in respect of the dividend income earned by the assessee on its investment in shares in U. K. The Income-tax Officer does not appear to have given any reason for his decision. The net dividend income of the assessee received on its investments in shares in U. K. in the relevant year came to Rs. 15,266 after deduction of tax of Rs. 9,881 in rupee figures therefrom. Against the decision of the Income-tax Officer refusing to grant any relief to the assessee in respect of the said dividend income of Rs. 15,266, the assessee preferred an appeal. The Appellate Assistant Commissioner held that the amount deducted from the dividend income was not paid to U. K. revenue and the net dividend of Rs. 15,266 did not suffer tax at both places and as such there was no question of granting any relief under Section 49d, In that view of the matter the Appellate Assistant Commissioner dismissed the said appeal of the assessee. The assessee thereafter preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal accepted the assessee's claim and allowed the appeal preferred by the assessee. The Tri
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