TMI Blog1995 (12) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer held that gross income, i.e., net income plus tax deducted at source was chargeable to income-tax. On appeal, in the cases of Begum Rashid, Mrs. Nilofarkhan and Smt. Mohabano Ali, the Assistant Commissioner rejected the appeals but the Commissioner of Income-tax (Appeals) in the appeals of Nadir Rashid and Yawar Rashid, accepted their claim and held that only the net amount received in India could be said to have accrued or arisen to them. The Revenue challenged the order of the Commissioner of Income-tax (Appeals) before the Tribunal and the Tribunal relying on the decision of the Kerala High Court in the case of CIT v. Y. N. S. Hobbs [1979] 116 ITR 20 and that of the Calcutta High Court in CIT v. Shaw Wallace and Co. Ltd. [1983] 143 ITR 207 held that under section 5(1)(c) of the Income-tax Act, only the actual receipt can be included in the total income of the assessee and the income which can be deemed to accrue or arise outside India, is not liable to be included in the total income of the assessees under the above clause. Consequently, it was held that tax deducted at source outside India cannot be treated as part of the total income of the assessees. Hence, the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income and in the second category any income which accrues or arises that means income in the ordinary course under any law, accrues or arises to him or it could be deemed to have accrued to him or it could be deemed to have arisen to him, i.e., whatever income under any law that it has not been received by him in hand ; but it accrues or arises to him on account of loan from any source. Therefore, in category (b), it is fictionally deemed that even if the income which has not been received in hand but it arises or accrues to him from any source, that will be treated to be the total income. But as against this, in category (c), it only talks about the income, i.e., which accrues or arises to him from outside India during that year. Therefore, a distinction has to be made between three clauses, i.e., clause (a) means the actual income received, clause (b) talks about the income which accrues or arises to him though it has not been received in hand, and clause (c) means that it accrues or arises to him from outside India that shows that income which has been received by the assessee from outside India, shall only be entitled to be taken as total income. This distinction has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction has been made abroad according to the law prevailing in that country then that deduction has not been prohibited. So far as clause (c) is concerned, there is no prohibition under the Act that what is the income has been deducted at source abroad according to law of that country, then that income is to be counted so as to arrive at the gross income of the assessee. There is no such inclusion under section 198 of the Act of the income deducted at source abroad. That gives an indication that the Legislature deliberately did not want to include that deduction as a part of the assessee's income for the purpose of computing his gross income or it is a case of a bona fide omissions. But none the less, the fact remains that there is no provision which mandates that if any income has been deducted at source abroad then that income should also be computed for the purpose arriving at the gross income of the assessee for tax liability. A reference has been made to section 91 which caters to the contingency of an income arisen abroad where there is no agreement with India for tax relief or avoidance of double taxation, any tax has been paid according to the laws of that country, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the assessee for tax liability in India. Therefore, these two provisions make it a harmonious reading and leaves out section 91 which is not applicable. It is only when the income which has already suffered a tax, is being sought to be doubly taxed in India, then the question will arise that how the assessee shall be taxed and on what rate. But, if the assessee has only received the actual income and not the income which is deemed to accrue or is deemed to arise to him in that case, section 91 will not be applicable. But there is divergent judicial opinion in India. The Kerala, Calcutta and Bombay High Courts have consistently taken the view that such income which has been actually received in India, shall only be treated to be an actual income and not the income which accrued to the assessee abroad and in that connection, the expression " deemed to accrue or arise " appearing in section 5(1)(b) has been emphasised and it was pointed out that as against in clause (c), there is no expression used " deemed to accrue or arise ". Therefore, in contradistinction with clause 5(1)(b) and clause 5(1)(c), section 5(1) shall mean the actual money which is received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory fiction determines the year in which dividend is to be treated as income and the fiction does not provide for the quantum of the dividend which is to be treated as the income of the shareholder. Both under section 185(2) of the U. K. Income-tax Act, 1952, and section 47(2) of the U. K. Finance Act, 1965, the amount deducted by the company at the time of distribution of dividends to its shareholders is deemed to be the income of the shareholders. It is a statutory receipt or fictional income. It is not liable to be taxed in the hands of an assessee in India. Section 8 of the Income-tax Act, 1961, read with sections 194 and 198, makes it clear that so far as the U. K. tax portion of the dividend is concerned, there is diversion of that portion by statute at the declaration stage. Therefore, it is not a case of application of income after accrual. That income, in the eye of law, never accrues in the sense of a debt owed by the company to the assessee. It is a debt by the company to the Revenue but no debt on that amount accrues in favour of the assessee. Hence, only the net amount of the dividends paid by the U. K. companies after deduction of the U. K. tax at source s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsoever. In the case of A. F. W. Low [1995] 211 ITR 213 (Mad), their Lordships observed : " Prior to the U. K. Finance Act, 1965, amounts deducted by way of tax from the dividends distributed by companies incorporated in the U. K. at the standard rates were allowed to be retained by the companies, but after 1965, the amounts had to be paid over to the Inland Revenue. Under the U. K. Income-tax Act, 1952, there is no provision to the effect that amounts deducted from dividend income of a member constituted payment of income-tax by the member. Provision is made under section 91(1) of the Income-tax Act, 1961, corresponding to section 49D of the Indian Income-tax Act, 1922, to make available to the assessee double income-tax relief, subject to the fulfilment of the requirements in that regard. Having regard to section 91 providing for double income-tax relief, the gross dividend alone should be regarded as having accrued or arisen or even received by the assessee. " In that case, their Lordships did not agree with the decision of the Calcutta High Court in the case of Oriental Co. Ltd. [1982] 137 ITR 777 and their Lordships did not examine the matter that what is the effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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