1994 (4) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of tax deducted in the United Kingdom in the chargeable income of the assessee.
2. Interpretation of Section 5(1) of the Income-tax Act, 1961.
3. Applicability of grossing up provisions for dividend income received from foreign companies.

Summary:

Issue 1: Inclusion of tax deducted in the United Kingdom in the chargeable income of the assessee
The primary issue was whether the tax deducted by companies in the United Kingdom and paid into the UK Treasury, after deducting it from the dividends paid to the assessee, is includible in the chargeable income of the assessee. The Income-tax Officer included the gross dividend in the income of the assessee, but the Commissioner of Income-tax (Appeals) accepted the assessee's contention that only the net dividend should be included. The Tribunal upheld the assessee's contention, leading to the reference of the question to the High Court.

Issue 2: Interpretation of Section 5(1) of the Income-tax Act, 1961
Section 5(1) of the Income-tax Act, 1961, was examined to determine whether the income includible in the total income of a resident includes the gross dividend or only the net dividend. The court noted that for income arising outside India, only the income which actually accrues or arises to the assessee is includible in the total income.

Issue 3: Applicability of grossing up provisions for dividend income received from foreign companies
The court considered the provisions of the relevant law in the United Kingdom and previous judgments, including CIT v. Blundell Spence and Co. Ltd. and CIT v. Shaw Wallace and Co. Ltd., which held that the grossing up of dividend income is not applicable to dividends received from companies in the United Kingdom. The court concluded that the tax deducted by the UK company, for which the non-resident assessee gets no tax credit in the United Kingdom, cannot be added back to the assessee's income in the absence of any such provision in the Indian Income-tax Act, 1961.

Conclusion:
The court answered the referred question in the negative and in favour of the assessee, stating that the tax deducted by the companies in the United Kingdom and paid into the Treasury in the United Kingdom is not includible in the chargeable income of the assessee. The same conclusion was reached for the question in Income-tax Reference No. 130 of 1986. There was no order as to costs in both matters.