TMI Blog2010 (7) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed in sourcing country as well as in another Contracting State. So far as sec. 91 is concerned, the said section has no application to the assessee’s case as admittedly, there is an existing Treaty between India and UK and the said section applies where there is no treaty or agreement under sec 90 of the Income Tax Act. We, therefore, direct the AO to assess the dividend after increasing by 1/9th tax credit as discussed herein above on deemed gross basis in the hands of the assessee and also allow the tax credit as per Article 11 (2) for the A. Yrs. 2000-01 to 2004. - IT APPEAL NOS. 470, 471, 950 & 951 (MUM.) OF 2008 AND 2325 TO 2328 AND 2358 TO 2361 (MUM.) OF 2009 - - - Dated:- 30-7-2010 - R K PANDA ACCOUNTANT MEMBER J. R S PADVEKAR JUDICIAL MEMBER J. Assessee by: Shri P J Pardiwalla Revenue by: Shri Keshkamath ORDER R S PADVEKAR: In this bunch of appeals, there are six appeal by the assessee and six appeals are by the revenue. As the issues as well as facts are identical in all these appeals; hence, these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The assessee has challenged the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the AO as the basic mandate of section is retained i.e. in respect of formation of belief and the same should be formed on some cogent material. He, therefore, pleaded that on this ground alone, the reassessment proceedings initiated by the AO u/s 147 for the AY 199-2000 to 2003-04 may be quashed. 5.1 .He further argues that so far the AY 1999-2000 is concerned; the assessee was never issued a notice u/s 143(2) before passing the order u/s 143(3) r.w.s. 147. He argued that the issue of notice u/s 143(2) is now well settled principle by the decision of the jurisdictional High Court in the case of CWT vs HUF of H H Late J M Scindia (300 ITR 193). He further submits that though the said case is under wealth tax but the provisions and the proceedings of the said Act in respect of assessment to be framed are analogues with the I T Act. He, therefore, pleaded that as the notice u/s 143(2) was not issued in the AY 1999-2000 hence, the assessment proceedings for AY 1999-2000 are required to be quashed. The ld senior counsel relied on the decision of the Special Bench of the Tribunal in the case of Kuber Tobacco Products P Ltd (117 ITD 273 (Del)(SB). He further argues that amendment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the post 1965 period and the dividend is to be taxed on the gross basis in the hands of the Indian share holders. The Board has also considered the decision of the Hon ble Kerala High Court in the case of CIT vs Y N S Hobbs (1979) (116 ITR 20). 7. Admittedly, the decision of the Hon ble High Court of Bombay, in the case of Ambala Kilachand (supra) was not available at that time when the CBDT issued above referred as the said judgment was delivered on 12.4.1994. Even in the case of Ambala Kilachand (supra), it is seen that though the Hon ble High Court has referred to the decision of the Supreme Court in the case of Clive Insurance Co Ltd (supra) but observed that they have not examined the said decision at length as the issue before the Supreme Court in the case of Clive Insurance Co Ltd (supra) was whether the assessee is entitled to double taxable relief u/s 91 or not as there was no Treaty between India U.K. for the assessment years before the Hon ble High Court. 8. On perusal of the decision of the Hon ble Bombay High Court in the case of Ambala Kilachand (supra), it appears that the Circular No.369 dt 17.9.1983 was not brought to the notice of the Hon ble High Cout a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble High Court in the case of CWT vs HUF of H H Late J M Scindia (supra) are squarely applicable to sec. 143(2) of the Act. Moreover, the Hon ble High Court has also held that even in the case of reopening of the assessment u/s 147, the AO is bound to comply with the requirements of sec. 143(2) of the Act. Though, theld DR tried to argue that the notice u/s 143(2) is procedural one but we reject the said arguments for the reasons that the jurisdictional High Court has examined the nature of the provisions of sec. 143(2). Accordingly, we hold that the assessment for the AYs 1999-2000 is invalid and bad in law; accordingly, we cancel the same and allow the grounds taken by the assessee on this issue for said assessment year. As grounds of the assessee are allowed on the issue of validity of the proceedings under sec. 147, in consequence grounds taken by the revenue have to fail and accordingly same are dismissed. 13. So far as the AY 2001-02 to 2003-04 are concerned, we reject the all relevant grounds challenging the valid of the proceedings u/s 147. 14. Now, we will examine the issue on merit. On merit, the assessee has taken the following grounds, which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the normal provisions of the Act, he being the resident of India. 18.1 The modality of the taxation under the UK law has been changed from time to time prior to and after 1965. The United Kingdom (U.K.) Finance Act 1965 provided that the corporation tax shall not be charged on dividend and other distribution of a company. In respect of the resident Company in the UK any such dividend or distribution would not be taken into account in computing the Corporation tax. But, after 1965-66, the same would be chargeable in respect of the dividend and other distribution in respect of the company resident inUK and for the purposes of Income Tax Act, such distribution should be regarded as the income in the UK in the hands of the recipient. The provisions in respect of the tax credit was also made only to a company or person resident in UK but in the case of a person or a company, who were not resident in UK, if the income includes distribution in respect of which, the said person was not entitled to tax credit then no assessment was made on such person under I T Act with that amount i.e. on the distribution and dividend. But at the same time, the non-resident in UK was not given any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 . So far as the present assessment years are concerned, admittedly, the DTAA is applicable and we have to examine the issue as per the Articles of the treaty. The Article 11 provides for the modality of the taxation of the dividend and the Article 11 reads as under: 1(a) A dividend paid by a company which is a resident of the United Kingdom to a resident of India may be taxed in India. (b) Where under paragraph 2 of this Article, a resident of India is entitled to tax credit in respect of that dividend, tax may also be charged in the UK and according to the laws of the UK on the aggregate of the amount or value of the dividend and the amount of the tax credit, at a rate not exceeding 15%. c) Except as provided in sub-paragraph (b) of this paragraph, a dividend derived from a company which is a resident of the UK by a resident of India, who is the beneficial owner of the dividend, shall be exempt from any tax in the UK which is chargeable on dividends. 2. An individual who is a resident of India and who receives a dividend from a company which is a resident of the UK shall provide he is the beneficial owner of the dividend, be entitled to the tax credit in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit and whether the dividend income received by the assessee is to be assessed on the gross or on the net basis; after enhancing amount of dividend received or not. 23. As per Para 2 to Article 11, disparity between resident of the UK and non resident of the UK is in respect of treatment of tax credit has been removed and a non-resident individual of the UK is brought at par with the resident of the UK for getting the benefit of the tax credit. 24. So Far as the Article 11(2) is concerned, an individual who is a resident of India, is entitled to tax credit on the same footing, which an individual resident in the UK is entitled to if he receives the dividend. Prior to 6.4.99, there was imputation system of tax for individual recipient of dividend, declared or paid by UK Company. When a Company paid a dividend, 20% gross dividend was deducted from the payments. The tax deducted was paid to the Inland Revenue and the net dividend was paid to the share holder. The share holder was subjected to the income tax on the gross dividend and he could claim the deduction for the tax withheld by the company. 24.1 There was a change in the system from 6.4.99 and from the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld counsel for the assessee argues that as per Article 24 of the treaty, if the income has already suffered the tax in the UK, then the said income should not be again made to suffer tax inIndia. 25.2 From 6.4.99, admittedly, the tax is not deducted at the time of payment of the dividend. There is a corporation tax, which the company is liable to pay. But the corporation tax paid by the company has no implication on the amount received by the assessee. In our opinion, the purpose of Article 24 is totally different in the sense that the Article 24 comes to aid where the same profit or income is taxed in sourcing country as well as in another ContractingState. 26. Another argument of the ld Counsel is that as per Article 23 of the Treaty, the pro-rata credit is available to the assessee and hence, in the case of the assessee only net dividend should be taken into consideration after deducting 15% tax and on pro-rata basis, the benefit may be given to the tax credit. We are afraid that said submission can not be accepted for the reasons that no tax is deducted by the U.K Company as per tax law of the U.K. while paying dividend to the assessee as beneficial shareholder but he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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