1958 (3) TMI 56 - HC - Income Tax

Issues Involved:
1. Inclusion of the moiety of the dividend declared on October 14, 1952, in the total income of the assessee for the previous year S.Y. 2008.
2. Inclusion of the 'P. portion of the dividend income' in the assessee's total income for the said previous year.
3. Entitlement to relief on the 'P. portion of the dividend income' under the Indo-Pakistan Agreement for Avoidance of Double Taxation.

Issue-wise Detailed Analysis:

1. Inclusion of the Moiety of the Dividend Declared on October 14, 1952, in the Total Income of the Assessee for the Previous Year S.Y. 2008:
The primary issue was whether the moiety of the dividend declared by the company on October 14, 1952, should be included in the assessee's total income for the previous year S.Y. 2008 (assessment year 1953-54). The company declared a dividend of Rs. 1,71,992, with half payable immediately and the other half contingent upon remittances from Pakistan becoming free. The Income-tax Officer included the entire net dividend in the assessee's income for S.Y. 2008, which the Tribunal upheld.

The court examined Section 16(2) of the Indian Income-tax Act, which states that dividends are to be included in the total income of the previous year in which they are "paid, credited or distributed." The court rejected the assessee's contention that the dividend should only be included when actually received, emphasizing that the method of accounting (cash basis) cannot override the clear legislative provisions. The court concluded that the dividend was not "paid" within the meaning of Section 16(2) since it was contingent upon an uncertain event (remittances from Pakistan becoming free), and thus, it should not be included in the income for S.Y. 2008.

Conclusion: The court answered this question in the negative, indicating that the moiety of the dividend was not properly includible in the total income of the assessee for S.Y. 2008.

2. Inclusion of the 'P. Portion of the Dividend Income' in the Assessee's Total Income for the Said Previous Year:
The second issue was whether the portion of the dividend income attributable to profits accrued in Pakistan (the 'P. portion') should be included in the assessee's total income for the previous year S.Y. 2008. The court referred to the decision in Commissioner of Income-tax v. Shanti K. Maheshwari ([1958] 33 I.T.R. 313), which dealt with similar facts and legal principles.

Conclusion: The court answered this question in the affirmative, meaning that the 'P. portion of the dividend income' forms part of the assessee's total income for the previous year S.Y. 2008.

3. Entitlement to Relief on the 'P. Portion of the Dividend Income' under the Indo-Pakistan Agreement for Avoidance of Double Taxation:
The third issue was whether the assessee was entitled to relief on the 'P. portion of the dividend income' under the Indo-Pakistan Agreement for Avoidance of Double Taxation. The court again referred to the decision in Commissioner of Income-tax v. Shanti K. Maheshwari ([1958] 33 I.T.R. 313), which provided guidance on interpreting the Indo-Pakistan Agreement.

Conclusion: The court answered this question in the affirmative, indicating that the assessee was entitled to relief on the 'P. portion of the dividend income' under the Indo-Pakistan Agreement.

Final Judgment:
The court concluded with the following answers:
1. The moiety of the dividend declared on October 14, 1952, is not properly includible in the total income of the assessee for the previous year S.Y. 2008.
2. The 'P. portion of the dividend income' forms part of the assessee's total income for the previous year S.Y. 2008.
3. The assessee is entitled to relief on the 'P. portion of the dividend income' under the Indo-Pakistan Agreement for Avoidance of Double Taxation.

No order as to costs was made for both the reference and the notice of motion.

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