1971 (5) TMI 20 - HC - Income Tax

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

Summary

Issues Involved:
1. Competence of the present reference.
2. Whether the sum deducted from the dividend constitutes payment of income-tax by the assessee under the law of U.K.
3. Whether the assessee can claim relief under section 49D without actual assessment in U.K.

Issue-wise Detailed Analysis:

1. Competence of the Present Reference:
The assessee raised a preliminary objection regarding the competence of the reference, arguing that the Tribunal's finding that the assessee paid income-tax by deduction in accordance with U.K. law is a factual finding binding on the court. The court disagreed, stating that the finding involves interpretation of the English statute and judicial decisions, making it a mixed question of fact and law. The court also rejected the argument that the Tribunal's interpretation of "assessed" in Explanation (iii) does not form part of the reference, emphasizing that the question referred is broad enough to cover this aspect.

2. Payment of Income-Tax by Deduction:
The court examined whether the sum deducted from the dividend income constitutes payment of income-tax by the assessee in U.K. under the law of U.K. The court reviewed relevant provisions of the English Income Tax Act, 1952, and various judicial decisions. It concluded that, despite differences in statutory provisions between India and the U.K., the sums deducted from dividend income under section 184 of the English Act are treated and recognized as payment of income-tax by deduction under U.K. law. The court noted that the authority to deduct tax from dividends is conferred by the taxing statute, and such deductions are considered payment of income-tax by the shareholder, even though the deducted amounts are retained by the company and not paid to the revenue authorities.

3. Relief Under Section 49D Without Actual Assessment:
The court addressed whether the assessee can claim relief under section 49D without actual assessment in U.K. The court held that entitlement to relief requires satisfying the conditions in section 49D(1), including payment of income-tax by deduction or otherwise under the law of the foreign country. The court found that the assessee met these conditions. The court also considered the requirement of Explanation (iii) for determining the rate of tax in the foreign country. In this case, the assessee, being a company, was not liable for sur-tax and had paid tax at the standard rate, making it straightforward to ascertain the rate of tax in accordance with the Explanation. The court concluded that all requirements for granting relief were fulfilled, rendering further interpretation of the term "assessed" unnecessary.

Conclusion:
The court answered the question in the affirmative, in favor of the assessee, holding that the sum deducted from the dividend income constitutes payment of income-tax by deduction under U.K. law, and the assessee is entitled to relief under section 49D of the Indian Income-tax Act, 1922. The applicant was ordered to pay costs to the respondent-assessee.