1951 (8) TMI 20 - HC - Income Tax

Summary

Issues:
Interpretation of Sections 16(2) and 18(5) of the Income-tax Act regarding grossing up of dividend income and relief to shareholders. Consideration of tax paid by a company outside India in grossing up dividend income. Relevance of Section 49B in determining grossing up of dividend income.

Analysis:
The judgment by the High Court of Bombay involved a case where the assessee, a non-resident company, received a dividend from a company in the United Kingdom. The Income-tax Officer grossed up the dividend income by adding the tax payable in the United Kingdom and Indian income-tax. The Appellate Assistant Commissioner and the Tribunal disagreed with the Income-tax Officer's calculation, leading to the Commissioner seeking clarification from the Court.

The Court emphasized the principles under the Income-tax Act related to dividend income. Section 16(2) provides for grossing up of dividend income based on the tax paid by the company in India. The grossing up aims to ascertain the actual income of the assessee from dividends. Section 18(5) offers relief to the shareholder by treating the increased dividend amount as a payment of income-tax on their behalf.

The Court highlighted that the grossing up under Section 16(2) is limited to the tax paid by the company in India at the rate specified in the Finance Act. It does not extend to tax paid by a company outside India. The judgment clarified that Section 49B, which deals with refunds based on income-tax deemed to be paid by shareholders, was not applicable in this case as it pertains to a different scenario.

The Court concluded that Sections 16(2) and 18(5) provide a self-contained mechanism for grossing up dividend income and granting relief to shareholders. The judgment rejected the argument to consider tax paid by the company in the United Kingdom in grossing up the dividend income, as it was not supported by the provisions of the Income-tax Act.

In the end, the Court answered the question in the negative, affirming the decision of the Appellate Assistant Commissioner and the Tribunal. The Commissioner was directed to bear the costs of the proceedings. Justice Tendolkar concurred with the judgment, and the reference was answered in the negative, settling the issue in question.