1994 (1) TMI 26 - HC - Income Tax

Summary

Issues:
Assessment of gross dividend income for an individual resident under section 5(1)(c) of the Income-tax Act, 1961 for the assessment years 1970-71 and 1971-72.

Analysis:
The judgment addressed the issue of including gross dividend income received by an individual from companies in the United Kingdom in the computation of income for the assessment years 1970-71 and 1971-72. Initially, the Income-tax Officer included the net dividend income in the assessments, but later realized that the gross dividend income should be included under section 5(1)(c) of the Act due to the amendment in the U.K. Income-tax Act, 1952. The reassessment was based on the gross dividend income received by the assessee. The Appellate Assistant Commissioner disagreed, stating there was no provision authorizing the assessment of gross dividend income. However, the Tribunal upheld the reassessment orders, considering the gross dividends as the assessee's income. The question referred to the court was whether the gross dividends should be included as foreign dividend income for the assessment years in question.

The court analyzed the arguments presented by both parties. The assessee's counsel contended that only the net dividend income should be considered as accrued to the assessee outside India. On the other hand, the Revenue's counsel argued that the assessee received both the net and gross dividend income due to tax deductions by U.K. companies. The court referred to the U.K. Finance Act, 1965, which required tax deductions from dividends to be paid to the Inland Revenue. Additionally, the court considered the provisions for double income-tax relief under section 91 of the Act.

The court relied on the decision in CIT v. Clive Insurance Co. Ltd. [1978] 113 ITR 636, where it was established that the gross dividend income should be considered as accrued to the assessee. The court highlighted that the payment of tax by the company operated as relief to the shareholder, making the dividend income not chargeable to tax in the U.K. The court emphasized that the gross amount must be the income of the assessee for double taxation relief to apply.

Regarding the decision in CIT v. Oriental Co. Ltd. [1982] 137 ITR 777 (Cal), the court disagreed with the view that only the net dividend income should be included in the total income. The court emphasized the need to avoid anomalies in taxation and upheld the inclusion of gross dividend income based on the principles established in previous judgments.

In conclusion, the court answered the question in the affirmative, stating that the gross dividends are liable to be included as foreign dividend income for the assessment years 1970-71 and 1971-72. No costs were awarded in this matter.