TMI Blog1978 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... aid income-tax in U.K. by deduction or otherwise in respect of the net dividends of Rs. 15,266 so as to be eligible for the relief contemplated by section 49D of the Indian Income-tax Act, 1922 ?" The respondent-assessee is a resident company carrying on business of general insurance. The company held shares of U.K. based joint stock companies. The net dividend income in respect of the shares held by it amounted to Rs. 15,266 after deduction of the British income-tax of Rs. 9,881, the amount being stated in rupee equivalent of the pound sterling. For the assessment year 1960-61, the relevant previous year being the calendar year 1959, the assessee applied for relief under section 49D of the Indian Income-tax Act, 1922 (for short "the Act"). The Income-tax Officer declined to grant the relief but the reasons for the decision were not made explicit. In appeal by the assessee, the Appellate Assistant Commissioner confirmed the decision of the Income-tax Officer observing that even if it be held that the net dividend income suffered U.K. tax by deduction, there is nothing to show that the tax deducted was paid to U. K. revenue and, therefore, section 49D is not attracted. In further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning as set out in paragraph (iii) of the Explanation and in doing so the importance of the words "income assessed in the said country" has to be borne in mind. There is no controversy that the assessee is a resident company and has dividend income from the U.K. based joint stock companies, i.e., income accruing without the taxable territory. Admittedly, there is no reciprocal arrangement for relief or avoidance of double taxation between India and U.K. The assessee has received dividend income. A specimen dividend warrant issued in favour of the assessee reads as under: "Stockholders are particularly requested to notify the company of any change of address. 12125 J. LYONS AND COMPANY LIMITED.ORDINARY 'A' ORDINARY STOCK . Annexed is a warrant in payment of Interim Dividend on your Stock on account of the year ending 31st March, 1960. Gross Dividend of is. Od. per 1 unit on pound ...... Ordinary Stock…….. } pound 96 120 pound 1932 'A' Ordinary Stock…… } pound 37 88 Less--Income-tax at 7/9d. in the pound Net Dividend pound 59 34 THE CLIVE INSURANCE CO. LTD., CLIVE BUILDINGS , 8, NETAJI SUBHAS ROAD, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the dividends paid to the shareholders, vide section 184, U. K. Income-tax Act, 1952. The dividend income thus received by the shareholders is not chargeable to income-tax but is certainly chargeable to surtax in the hands of the assessee. In view of this legal position, it was strenuously contended that there was no statutory provision for taxing dividend income under the law of U. K. nor was there any machinery prescribed for assessing to income-tax the dividend income accrued to a shareholder. The company having been charged to tax on its income, the dividend income in the hands of shareholders was not chargeable to income-tax in the hands of shareholders. It was further said that to work out the mechanics of relief to be granted it must be shown that the dividend income in the hands of the assessee must be assessed at some rate of income-tax in U. K. and then comparison call be made with Indian rate of income-tax to grant relief. Initially, the difference that stares in our face in respect of deduction of income-tax from dividends paid by companies under U. K. income-tax law and our Act must be noticed. Under U. K. law the company has to pay tax on its profits or gains as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end and, therefore, the dividend income is already taxed. But this fiction led to a number of complications because the company is an independent juristic person and the scheme of the Income-tax Act in U. K. does not imply that the company pays tax on behalf of the member. To reconcile this position, way back, Lord Phillimore in Bradbury v. English Sewing Cotton Co. Ltd. [1923] 8 TC 481, 518, 519 (HL) observed as under: "Their taxation would seem to be logical, but it would be destructive of joint stock company enterprise, so the Act of 1842 has apparently proceeded on the idea that for revenue purposes a joint stock company should be treated as a large partnership, so that the payment of income-tax by a company would discharge the quasi-partners. The reason for their discharge may be the avoidance of double taxation, or to speak accurately, the avoidance of increased taxation. But the law is not founded upon the introduction of some equitable principle as modifying the statute; it is founded upon the provisions of the statute itself; and the statute carries the analogy of a partnership further, for it contemplates a company declaring a dividend on the gross gains, and then on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is speech, after referring to Bradbury's case [1923] 8 TC 481 (HL) and two other cases, observed that at one time it was thought that a company pays tax on behalf of or as agent for its shareholders, and, if that were so, the explanation would be obvious, but that idea has long been discarded. But, as late as 4th June, 1964, the House of Lords in F.S. Securities Ltd. v. Commissioners of Inland Revenue [1964] 41 TC 666; [1966] 59 ITR 331 (HL) has reaffirmed the earlier view which becomes abundantly clear from the speech of Viscount Radcliffe. After quoting the relevant sentence from the speech of Lord Phillimore in Bradbury's case [1923] 8 TC 481 (HL), the noble Law Lord observed that this analysis of treating the company as a large partnership so that payment of income-tax by a company would discharge the quasi-partners is now accepted as being correct and it remains essential to the application of the whole system even though the connection between any particular fund of profits and a dividend paid has now become in effect untraceable and the rule that the company recoups itself at the standard rate of tax that is current at the date of payment means that company and shareholder d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in respect of which income-tax has been paid by deduction or otherwise in accordance with the law in force in the country in which the income accrued. If it is now charged to tax under the Indian Income-tax Act, it obviously becomes a doubly taxed income and one of the requirements of section 49D would be satisfied. It was contended on behalf of the revenue that section 49D should be interpreted having regard to the scheme of our Act and in harmony with other relevant provisions, and it should not be interpreted by reference to English statutes not in pari materia or decisions of courts in England interpreting those statutes. It was pointed out that the course adopted in England in relation to dividend income has been described as anomalous. Undoubtedly, to be entitled to relief under section 49D, the requirements for eligibility therein prescribed must be satisfied by the assessee. One such requirement is that income in respect of which relief from double taxation is sought, is the income in respect of which he has paid income-tax by deduction or otherwise under the law in force in the country in which the income accrued. While examining the question whether the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was also liable to pay surtax in U.K. on the dividend income no (sic) complication would arise in working out the rate because surtax is payable on dividend income. But, in the present case, that difficulty does not arise as the assessee being a company, it was neither liable to any surtax nor entitled to any relief in U.K., and, therefore, the rate of tax can be worked out with certainty consistent with the provisions of paragraph (iii) of the Explanation. The assessee thus on the interpretation put by us in respect of the dividend income has paid tax at the standard rate and that is the rate of tax of the foreign country for the purpose of paragraph (iii) of the Explanation. Mr. Desai submitted that the expressions "paid", "by deduction or otherwise" and "rate of tax of the said country" and the Explanation to section 49D clearly postulate that relief can be granted under that section only in respect of the tax on income charged, assessed and actually paid by the assessee, to the revenue of the foreign country. In other words, it was said that the income in the hands of the person who now claims relief against double taxation must be assessed as his income and income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
