BALAKRISHNA AYYAR, J.

Under section 66(1) of the Income-tax Act, the Appellate Tribunal of Bombay has referred the following question for the decision of this court

" Whether the assessment of the gross income from the investment in the aforesaid foreign company, before the deduction of the Ceylon income-tax thereon, as having accrued in full, is valid and proper ? " *

The material facts are these : V. Ramaswami Naidu, the kartha of a Hindu undivided family, held in the names of various members of the family 10, 208 shares of Rs. 10 each in Agravas Estates Ltd., a company incorporated in Ceylon. For purposes of the Indian Income-tax Act this company is a foreign company. G. V. Govindaswami Naidu, another assessee, and his wife, Govindammal, held 10, 000 shares in the same company between them. At a meeting of the general body of shareholders of this company held on November 11, 1950, certain dividends were declared and subsequently paid in the manner and to the extent indicated below

Gross Ceylon Dividend

dividends income-tax Net dividends certificates

deducted annexures

(1) (2) (3) (4) (5)

Rs. Rs. Rs

Ramaswami Naidu

(Hindu undivided

family) ... 26, 270 8, 024 18, 246 "A-1, A-2 and A-3"

Govindaswami

Naidu ... 25, 000 7, 375 17, 625 "B -1 and B-2"

The previous year of these two assessees was the Tamil year ended April 13, 1951. For the assessment year 1951-52 the Income-tax Officer assessed the gross amounts of the dividends ignoring the Ceylon income-tax that had been deducted therefrom. The assessees contended before the Appellate Assistant Commissioner that it was only the net dividend that was assessable. The Appellate Assistant Commissioner, however, confirmed the orders of the Income-tax Officer. The assessees then went up to the Income-tax Appellate Tribunal. By its orders made on July 22, 1953, the Tribunal found--we are now quoting from paragraph 8 of the letter of reference--

"that the income in question did not call for consideration as 'dividends', as the aforesaid foreign company was not registered under the Indian Companies Act, and generally did not fall within the scope of sections 2(6), 2(6A) and 16(2) of the Income-tax Act, but only as income from a foreign investment ; there was no provision in the Ceylon Income Tax Ordinance which distinguished the position of the tax deducted at source from dividends from that envisaged in the scheme of the Indian Income-tax Act and that under both the enactments, the tax deducted was deemed to be credited to the assessee and paid on his account. "

On this reasoning the Tribunal rejected both the appeals

The assessees then applied to the Tribunal that the question of law arising out of their contention be referred to this court. The Tribunal agreed that a point of law arose and hence referred the question to this court

Certain provisions of the Ceylon Income Tax Ordinance must now be referred to. Sub-section (7) of section 20 of the Ordinance directs that upon the taxable income of every company, tax shall be charged at the rates specified therein. Section 43(1) entitles every resident company to deduct from the amount of any dividend which becomes payable during a year of assessment to any shareholder, tax at twice "the unit rate" in force for the year preceding the year of assessment in which such dividend becomes payable. Under the second proviso to this sub-section the Commissioner is empowered to give notice in writing to the company that in respect of the dividends payable to a particular shareholder, tax at a greater rate than twice the unit rate shall be deducted. On receipt of such notice the company is bound to deduct tax from all dividends paid to the particular shareholder at the rate mentioned in the notice. The proviso continues

"the tax so deductible in excess of tax at twice the unit rate shall be a debt due from the company to the Government of Ceylon and shall be recoverable forthwith as such, or may be assessed and charged upon the company in addition to any