TMI Blog1955 (9) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... but for the purpose of computing the total income the Income-tax Officer allowed the statutory deduction of ₹ 4,500 and thus included in the assessee's total income a sum of ₹ 8,120. 3. In the foreign income of ₹ 12,620 was included 500 which the assessee was entitled to receive in U.K. from three insurance companies under his annuity policies with them. The insurance companies deducted U.K. tax at the standard rate amounting to 275 and paid the assessee 225 only. The assessee says that the insurance companies were bound to deduct U.K. tax under U.K. income-tax law, before making the payment to him. 4. The assessee was resident and ordinarily resident in the year of account ending 31st March, 1952. 5. The only contention raised before the Tribunal was that 225 and not 500 should be included in the assessee's total income. This contention was not accepted by the Tribunal for the reasons recorded by it in its order, a copy of which is annexure 'A' and forms part of the case. 6. The only question that therefore arises is: Whether the sum of 500 or the sum of 225 fell to be included in the assessee's total income for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 275, by reason of the method of taxation adopted by the British Parliament the payer of the annuity is required to pay the sum of 275, and the law also provides that when the payer pays to the annuitant 225 instead of 500, the annuitant must give a full discharge to the payer of the annuity. It is on these provisions of the English law that the contention is put forward by Mr. Palkhivala that Sir Joseph Kay's income which accrued to him within the meaning of section 4(1) (b)(ii) was only 225 and not 500. The relevant provision with regard to tax on annuity payable out of profits is to found in the General Rules applicable to Schedules A, B, C, D, and E which are annexed to the English Income-tax Act, 1918, and rule 19 is the material rule. That rule provides that where any annuity is payable wholly out of profits or gains brought into charge to tax, no assessment shall be made upon the person entitled to such annuity, but the whole of the profits or gains brought into change to tax, no assessment shall made upon the person entitled to such annuity, but the whole of the profits or gains shall be assessed and charged with tax on the person liable to the annuity, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the source is deducting it on behalf of the person entitled to the salary. It is also pointed out that under section 18(4) it is expressly provided:- All sums deducted in accordance with the provisions of this section shall, for the purpose of computing the income of an assessee, be deemed to be income received. It is said that in the absence of these provisions under the English law the only part of the annuity which became the income of Sir Joseph Kay is 225 and not 500, that when the insurance companies deducted 275 they were not deducting the sum on behalf of Sir Joseph Kay in order that they should pay the tax on behalf of Sir Joseph Kay, but they were deducting it because the English statute cast an obligation upon the insurance companies to retain this sum, and it was by reason of this statutory obligation that this sum was being paid. What was must really look at is the substance of the legal provisions to which reference has been made and on which reliance has been placed, and we must look at the substance of the matter from only one simple point of view. Whose income was this 275 which was retained by the insurance companies under the provisions of rule 19? I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to pay the tax which is payable on the sum of 500. It is difficult to understand how the position is different from what it would have been if the insurance companies had paid the full sum of 500 to Sir Joseph Kay and Sir Joseph Kay would have paid 275 to the Income-tax authorities which he was liable to pay. Surely Mr. Palkhivala then could not have contended that the full sum of 500 has not been paid to him or that the debt has not been discharged. Instead of permitting the insurance companies to pay the full sum of 500 to Sir Joseph Kay and then collecting 275 from him, the taxing machinery set up in England provides that the taxing authorities will recover ? 275 from the insurance companies themselves and permit the insurance companies only to pay 225 to Sir Joseph Kay. It may be that strictly according to the language of the law the insurance companies are not paying 275 on behalf of Sir Joseph Kay, but you cannot get away from the salient fact that are paying 275 on the income of Sir Joseph Kay and not on their own income. It is pointed out that in the absence of provision like section 18(4) you cannot consider 275 as the income of Sir Joseph Kay. Section 18(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the annuitant the easier and the more convenient way of recovering tax would be to recover it from the payer of the annuity rather than from the annuitant himself. But having made that provision it proceeds to make it clear that the annuitant has received that full amount of the annuity, that the payer receives a proper discharge, and that in proper cases the annuitant is entitled to refund of tax if he was not liable to pay tax which the payer of the annuity has paid. Mr. Palkhivala has relied on a judgment of this Court in Commissioner of Income-tax v. Blundell Spence Co., Ltd. [1952] 21 I.T.R. 28 What we held there was that the assessee, a non-resident company registered in the United Kingdom with its head office in London, received dividend in respect of some shares held by it in a company which was assessed to income-tax both in the United Kingdom and in India. We held that in grossing up the dividends received by the assessee the Income-tax authorities were not entitled to take into consideration the tax paid by the company in the United Kingdom. In our opinion the two cases are not in pari materia. The only income of a shareholder is the dividend that he receives ..... X X X X Extracts X X X X X X X X Extracts X X X X
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