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TMI Blog2010 (7) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... d from HSBC holding PLC, UK. But while declaring the dividend income offered the net amount of dividend without addition tax credit for which he was eligible subject to certain conditions. He also claimed the credit for tax deduction deducted on the dividend in the UK and also relief under DTAA between India and UK. 4. So far as the issue regarding validity of proceedings u/s 147 is concerned, it is pertaining to A.Yrs. 1999-2000 to 2003-04. So far as AY 2004- 05 is concerned, the regular assessment is made u/s 143(3) of the Act... 5. The ld. senior counsel Shri .P.J. Pardiwalla argues that there was no material before the AO for forming the belief which is one of the essential condition for invoking the powers u/s 147 of the Act. He further argues that when the AO initiated proceedings u/s 147, at that time, the decision of the Hon'ble Bombay High Court in the case of CIT vs Ambala Kilachand ( 210 ITR 844) was already in favour of the assessee in which the Hon'ble High Court has held that in the case of dividend received from foreign company, the only net dividend is to be taxed in the hands of the assessee. It is further argued that there is no change in law. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO when he has decided to initiate action u/s 147. He argues that the material available at the time of initiation of proceedings u/s 147 for formation of belief need not be conclusive. Theld DR relied on the following precedents: i) Raymond Woollen Mills Ltd Vs ITO & Others(236 ITR 34(SC) ii) ACIT vs Rajesh Jhaveri Stock Brokers P Ltd (291 ITR 500) ii) Mahanagar Telephone Nigam Ltd vs Chairman, CBDT & Ors. (246 ITR 173) (Del). 6. We have given our careful consideration to the rival submissions. First of all, we will consider the objection raised by the assessee that there was no material or information before the AO for initiating the proceedings u/s 147 of the Act. In this case, there is no dispute on the fact that so far as the assessment years 1999-2000 to 2003-04 are concerned, the returns filed by the assessee were processed and accepted u/s 143(1) and there was no assessment u/s 143(3) of the Act. Hence, we need not examine the time limit put under the proviso to sec. 147. As per the reasons recorded by the AO on the basis of the CBDT circular no.369 dated 17.9.1983, the AO initiated the proceedings under Sec. 147 of the Act against the assessee for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) was available to the AO on this issue, in which the Hon'ble Bombay High Court had held that the dividend declared by the UK Companies and received by the Indian shareholders is to be taxed on the net basis and hence, the AO was not justified in discarding the decision of the jurisdictional High Court. 10. In the case of Ambala Kilachand (supra), the assessment years involved were 1971-72 to 19974-75. Moreover, the Hon'ble Bombay High Court had examine the Finance Act, 1972 of the U.K. as well as section 91 of the Indian Income Tax Act and has held that as the non-resident of the UK was not entitled for the tax credit; hence, whatever the Indian shareholder gets is the net amount and accordingly, the same is to be taxed. In our opinion, though the jurisdictional High Court has in very detailed manner examined the issue pertaining to gross or net of the dividend to be tax, received from the UK Companies by Indian shareholders but the assessment years as well as law applicable were totally different. 11.In our opinion, the AO was justified in initiating the proceedings u/s 147 on the basis of the CBDT circular no.369 dated 17.9.1983. We, therefore, reject the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation in respect of the said dividend income in terms of the provisions of Article 24 of the Double Taxation Avoidance Agreement between India and the United Kingdon and the CIT(A) ought to have held as such. The appellant submits that the AO be directed to grant relief from double taxation in respect of the dividend income as claimed by him and to re-compute his tax liability accordingly." 15.The revenue has also taken the following ground on merit: "Whether on the facts and in the circumstance of the case the CIT(A) is correct in directing the AO to tax only the net amount of dividend received by assessee from a UK based company disregarding the Board's circular no.369 dated 17.9.1983 which is applicable for the AY in question in assessee's case." Whether on the facts and circumstances of the case and in law the CIT(A) is correct in concluding that, the tax deducted by the company in the UK and paid into the treasury in the UK after deducting the same dividend paid to the assessee in the UK is not includable in the chargeable income of the assessee 16.The very controversy is rolling-round the issue whether; (i) the dividend received by the assessee from HSBC Holding PLC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the same again then the liability to pay Corporation tax on any income chargeable to corporation tax for that accounting period. The person receiving the distribution or dividend was entitled for tax credit but the person who is non-resident in the UK was not entitled for the tax credit. 19. In sum and substance, the law in UK provided the tax credit for the resident of the UK and no tax credit for non-resident of UK. After examining the law applicable in UK Finance Act, 1972 in the case of Ambala Kilachand (supra), it was held that as the share holder who is non- resident UK cannot claim any credit towards the tax paid by the company. The only amount received towards dividend after reducing the corporation tax is to be considered as income accrued to the resident in India. The said modality of taxation was applicable prior to 6.4.1999, which is known as 'imputation system' when the company paid the dividend, 20% gross dividend was deducted from the payment and the same was paid to Inland Revenue (now HMRC) and the net dividend was paid to the shareholders. The distribution was then subject to income tax on gross dividend so far as the UK resident is concerned and could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not exceed 15 percent of the gross amount of the dividend. 4. The preceding paragraphs of this Article shall not affect the taxation of the company in respect of the profits out of which the dividend is paid. 5. The provisions of paragraphs 1 and 2 or as the case may be, paragraph3 of this Article shall not apply if the beneficial owner of the dividend, being a resident of a Contracting State, has, in the other contracting state of which the company paying the dividend is a resident a permanent establishment or fixed base with which the holding by virtue of which the dividend is paid is effectively connected. In such a case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case maybe, shall apply. 6. Where a company which is a resident of a Contacting State derives profits or income from the other Contracting Stage, that other State may not impose any tax on the dividends paid by the company, except in so far as such dividends are paid to a resident of that other state or in so far as the holding in respect of which the dividends are paid is effectively connected with a permanen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional tax liability but a shareholder who is not a higher rate taxpayer has no further tax to pay. If tax credit exceeds the U.K. income tax liability, no repayment is made to the tax payer. It means assessee can not claim any refund out of tax credit which is only adjusted against his tax liability. Hence, as per the law applicable for the assessment years from 2000-01 to 2004-05, if the assessee is desiring to get the benefit of the tax credit as available as per U.K. Law then he will be treated at par with the resident of the UK and the amount received by the assessee is then deemed to increase by 1/9th of dividend received from the U.K. Company for the purpose of taxation under Indian Income Tax Act and tax credit can only be adjusted against his tax liability in India but he can not claim refund, if any, in case his tax credit is more than his tax liability. 25. The assessee has filed a copy of one tax credit certificate issued by HSBC,U.K.. In the tax credit column, the amount shown is 1/9th of the amount of dividend paid to the assessee. If the assessee desires to avail benefit of the tax credit, as avail by the individual resident of U.K., then 1/9th of the div ..... X X X X Extracts X X X X X X X X Extracts X X X X
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