TMI Blog1975 (12) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate Ltd., and the result, therefore, is that after the said order the assessee-company is the Distributors (Baroda) Private Ltd. Accordingly we direct that the cause title of this reference and all relevant papers be corrected to read " Distributors (Baroda) Private Ltd. " as the respondent, that is, as the assessee-company. In the present case we are concerned with the assessment year 1964-65 and the facts leading to this reference are few. The ssessee is a limited company. It derived income mostly from dividend and interest. In the original assessment the Income-tax Officer allowed double tax relief under section 91 of the Income-tax Act, 1961, to the extent of Rs. 9,497. Out of this relief, an amount of Rs. 8,870 was in respect of dividends of U K companies and an amount of Rs. 625 was in respect of dividends of Ceylon companies. Thereafter, the assessment was reopened by the Income-tax Officer and in the reassessment proceedings, double income-tax relief to the extent of Rs. 9,497, which was originally allowed, was withdrawn because, according to the Income-tax Officer, the tax deducted at source by the companies on the dividends distributed by them had not been paid to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh recognised agencies. As regards the rate of tax in U K the Tribunal agreed with the Appellate Assistant Commissioner and dismissed the appeal of the department. Thereafter, at the instance of the revenue the question hereinabove set out has been referred to us for our opinion. In order to appreciate the contentions which have been raised in this case, it is necessary first to refer to certain admitted facts. It is admitted : (1) that the U K companies deducted tax at the standard rate while paying dividends to their shareholders ; (2) the U K company concerned has not paid the amount thus deducted to the U K Government ; and (3) that the assessee has not been assessed in the U K. Chapter IX of our Act deals with double taxation relief. Section 90 speaks of agreement with foreign countries and it provides : " The Central Government may enter into an agreement-- (a) with the Government of any country outside India for the granting of relief in respect of income on which have been paid both income-tax (including super-tax) under this Act and income-tax in that country ; or (b) with the Government of any country outside India for the avoidance of double taxation of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of that income, the assessee must have paid income-tax, by deduction or otherwise, under the law in force in that country ; and (3) the relief can be given by deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the rate of tax of the foreign country, provided that tax is lower than the Indian rate of tax. If the rate of tax of the foreign country is higher, then the relief is to be calculated at the Indian rate and if both are equal, then, at the Indian rate of tax. The scheme of payment of income-tax by deduction at source so far as dividends paid by companies in India are concerned, is to be found in Chapter XVII of the Act of 1961. Sections 192 to 206A deal with deduction at source. Section 192 deals with deduction or income-tax at source so far as " salary " income is concerned. Section 193 deals with deduction of income-tax on interest on securities ; and section 194 deals with deduction at source of income-tax so far as dividends are concerned. Section 194 makes it obligatory on the principal officer of an Indian company to deduct income-tax payable on the dividend amount before payment of any amount in connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The Division Bench of the Calcutta High Court considered all the available decisions of the courts in England relating to the scheme of income-tax to be paid by a company in the United Kingdom and deduction from the dividend amount payable to the shareholder by the company of the amount of the tax. It seems that in England there is no scheme of deduction of tax at the source so far as dividends are concerned on the lines that we have in India. In the English statute there is no provision corresponding to the provision of the Indian Income-tax Act which specifically provides that amounts deducted from the dividend income of a member will constitute payment of income-tax by the member. Unlike the position in India, the amounts so deducted by companies are not made over to the revenue authority in the U K and are retained by the company concerned. Further, incomes from dividends in the hands of the shareholders are not liable to payment of any income-tax when such dividends have been declared and paid out of profits which have been taxed in the hands of the company. Notwithstanding these peculiar features, according to the Calcutta High Court, the sums deducted from the dividend a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, the company itself is chargeable to tax on its profits, and that it pays tax in discharge of its own liability and not as agent for its shareholders. The latter are not chargeable with income-tax on dividends, and they are not assessed in respect of them. The reason presumably is that the amount which is available to be distributed as dividend has already been diminished by tax on the company, and that it is thought inequitable to charge it again. At one time it was thought that the company, in paying tax, paid on behalf of the shareholder ; but this theory is now exploded by decisions in this House, and the position of the shareholders as to tax is as I have stated it." At page 576 A. N. Sen J. of the Calcutta High Court delivering the judgment of the Division Bench observed : " We, therefore, hold that the sum in question deducted from the dividend income of the assessee constitutes payment of income-tax by deduction by the assessee on the assessee's dividend income in U K under the law prevailing in U K .................. To us, however, it appears that section 49D which has been enacted for the purpose of granting relief to an assessee should be so construed as will s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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