TMI Blog1994 (4) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... follows : --------------------------------------------------------------------------------------------------------------------- Assessment Net Tax Gross years dividend deduction dividend ----------------------------------------- Rs. P. Rs. P. Rs. P. 1970-71 3,461.94 2,430.54 5,892.48 1971-72 4,724.46 3,317.58 8,042.04 1972-73 6,333.46 3,411.72 9,765.18 1973-74 7,445.70 4,710.06 12,155.76 1974-75 11,044.08 4,733.10 15,777.18 --------------------------------------------------- It is the assessee's contention that only the dividend actually received by him (the net dividend) is includible in his total income, as this is the income which accrued to him and was received by him outside India. It is, however, the contention of the Department that the tax which has been deducted in the United Kingdom is a part of the income of the assessee. Therefore, the income which is includible in the total income is the gross dividend. The Income-tax Officer included gross dividend in the income of the assessee. The Commissioner of Income-tax (Appeals), however, accepted the contention of the assessee. The Department filed appeals before the Tribunal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h desires to pay the dividend, shall, before making any payment in respect of any dividend or before making any distribution or payment to a shareholder of any dividend, deduct from the amount of such dividend, income-tax at the rates in force. Under section 198, all sums deducted in accordance with the provisions, inter alia, of section 194 shall, for the purpose of computing the income of an assessee be deemed to be income received . Therefore, by virtue of the provisions of section 194 read with section 198, in respect of any dividend income received in India, not merely the dividend amount actually received by the assessee but also the income-tax deducted thereon under section 194 is considered as income deemed to be received by the assessee, thus falling under section 5(1)(a). Accordingly, the gross amount of dividend would be includible in the total income of the assessee. These sections, however, do not have any application to a company in the United King dom which declares a distribution of dividend or pays tax thereon in the United Kingdom. We have to consider what is the income which accrues to an assessee when he receives a dividend from a company in the United Kingdom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kingdom that as far as possible tax is charged at the point where the income first emerges from the source and this is so even if the person primarily in receipt of the income does not ultimately enjoy it but pays it over or accounts for it to another who is the person beneficially entitled to it. In such cases, the person, assessed has the right to recoup himself, when making a payment of income to the person entitled thereto, by deducting the tax appropriate to that income, or by crediting himself with the amount when accounting. The author includes dividend income as one such income. He also cited with approval the following observations of Lord Atkin in the case of IRC v. Cull [1939] 22 TC 603 at page 636 ; [1940] 8 ITR (Suppl.) 1, 4 (HL) My Lords, it is now clearly established that in the case of a limited company the company itself is chargeable to tax on its profits, and that it pays tax in discharge of its own liability and not as agent for its share holders. The latter are not chargeable with income-tax on dividends, and they are not assessed in respect of them. The reason presumably is that the amount which is available to be distributed as dividend has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll such distributions shall be regarded as income, however, they fall to be dealt with in the hands of the recipient. Under Schedule F any such distribution in respect of which a person is entitled to a tax credit shall be treated as representing income equal to the aggregate of the amount or value of that distribution and the amount of that credit and the income under this Schedule shall, accordingly, be charged as though accrued and such tax credit is available only to a company or a person resident in the United Kingdom. In the case of a person or a company, not being resident in the United Kingdom, if the income includes a distribution in respect of which that person is not entitled to tax credit, no assessment can be made of that person in respect of income-tax on that amount or value of the distribution. In other words, such a person is not liable to tax in the United Kingdom on the dividend income received from a company registered in the United Kingdom. Nor is he entitled to any tax credit for the amount of tax deducted by the U. K. company. We respectfully agree with the conclusion of the Calcutta High Court that the tax so deducted by the U. K. company for which the non-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come by the tax so deducted. These provisions, however, do not have any application to persons who are not resident in the United Kingdom. The dividends are received by them as diminished by the deduction of the corporation tax paid on it. As far as we can see, this basic scheme does not appear to have changed even after the Finance Act, 1972. What, therefore, accrues to an assessee in respect of shares held by him in the United Kingdom is the dividend as actually distributed to him. The amount initially available for distribution by the U. K. company cannot be considered as income accruing to the assessee, because the assessee does not have any right to receive the amount so initially declared. He does not have any right to claim any credit for the tax which is deducted on that amount. Therefore, under no circumstances can he claim that the gross amount available for distribution has accrued to him. The company in the United Kingdom is liable to pay certain tax on that amount before the money goes to the hands of its shareholders. A shareholder outside the United Kingdom cannot claim any credit for the tax paid by the company. Therefore, the only entitlement of a shareholder outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch tax relief under section 91. We have not examined this decision at any length because we do not have to consider whether the assessee is entitled to double taxation relief under section 91 or not. Looking to the provisions of the Finance Act, 1972, under which corporation tax is payable by the company for which the recipient of the distribution resident in the United Kingdom gets tax credit, and looking to the language of section 91 under which the double taxation relief is granted to an assessee in respect of any tax which the assessee has paid in any country to which section 91 of the Act applies, it is a moot point whether the provisions of section 91 would be attracted in any event, after the U. K. Finance Act, 1972, or whether the ratio of the Supreme Court judgment in the case of CIT v. Clive Insurance Co. Ltd. [1978] 113 ITR 636 would govern the present case. Since the question in the present reference does not relate to double taxation relief, we refrain from expressing any view thereon. In the premises, the question which is referred to us is answered in the negative and in favour of the assessee in Income-tax Reference No. 433 of 1982. The question referred to us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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