1988 (8) TMI 119 - AT - Income Tax

Summary

Issues Involved:
1. Taxation of gross vs. net dividend received from a foreign company.
2. Entitlement to double taxation relief under Section 91 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Taxation of Gross vs. Net Dividend:
The primary issue in these appeals is whether the gross dividend or the net dividend received by the assessee-company from PT Kamaltex, Indonesia, should be taxed. The assessee argued that only the net dividend should be taxed, while the Revenue contended that the gross dividend should be taxed.

Facts:
- The assessee purchased shares of PT Kamaltex in 1977-78 but did not receive any dividends until the assessment years 1981-82 and 1982-83.
- For these years, the gross dividends were Rs. 5,47,569 and Rs. 7,27,711, respectively, with corresponding withholding taxes of Rs. 1,09,513 and Rs. 1,45,542.
- The Income Tax Officer (ITO) proposed to tax the gross dividend, arguing that the tax deducted in Indonesia is an application of income and should be included in the assessee's income.

Assessee's Argument:
- The assessee relied on the decisions of the Kerala High Court in CIT vs. Hoobbs, Y.N.S. and the Calcutta High Court in CIT vs. Shaw Wallace & Co. Ltd. and CIT vs. Indian Textile Agency Ltd., which held that only the net dividend should be taxed.
- The tax deducted in Indonesia is not refundable, and therefore, only the net dividend should be considered as income.

Revenue's Argument:
- The Revenue argued that the gross dividend should be taxed, citing the absence of specific provisions in the Income Tax Act for grossing up dividends received from foreign companies.
- They also relied on the Gujarat High Court decision in CIT vs. Cotton Fabrics Ltd., which supported the inclusion of gross dividends in taxable income.

Tribunal's Decision:
- The Tribunal noted that the ITO and CIT(A) had ignored relevant High Court decisions that supported the assessee's position.
- The Tribunal emphasized that the tax deducted in Indonesia is not refundable and should not be considered as income received by the assessee.
- Following the decisions of the Kerala and Calcutta High Courts, the Tribunal held that only the net dividend should be taxed.

2. Entitlement to Double Taxation Relief:
The second issue pertains to the assessee's entitlement to double taxation relief under Section 91 of the Income Tax Act.

Facts:
- The ITO initially disallowed the assessee's claim for double taxation relief due to the absence of original documents proving the tax deduction in Indonesia.
- The assessee provided copies of relevant documents and a certificate from PT Kamaltex confirming the tax deduction.

Assessee's Argument:
- The assessee argued that it had provided sufficient evidence to claim double taxation relief under Section 91, which allows for relief if the tax has been paid in a foreign country.

Revenue's Argument:
- The Revenue contended that without the original TDS certificates, the claim for double taxation relief could not be allowed.

Tribunal's Decision:
- The Tribunal directed the ITO to allow double taxation relief under Section 91, as the assessee had provided adequate documentation to prove the tax deduction in Indonesia.

Conclusion:
The Tribunal allowed the appeals, holding that only the net dividend income should be taxed and directing the ITO to grant double taxation relief under Section 91. This decision aligns with the relevant High Court rulings and the principles of real income taxation.