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TMI Blog1968 (12) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... 958, the amount of dividend declared was Rs. 1,17,500 and the Income-tax Officer was of the view that grossing up could be allowed only to the extent of this amount. The difference between Rs. 1,17,080 and Rs. 1,17,500 was the sum of Rs. 53,580. The Income-tax Officer added this difference to the assessee's income on the ground that it "had come out of the unassessed and undisclosed income of the dividend paying company". The Appellate Assistant Commissioner did not agree with the Income-tax Officer's views and directed him to make a fresh assessment after scrutiny of the balance-sheet of the Bharat Nidhi Ltd. and after consulting the Income-tax Officer assessing the Bharat Nidhi Ltd. He did not, however, give any specific direction regarding the amount of dividend or the amount to be grossed up. The department appealed to the Tribunal contending that the Appellate Assistant Commissioner should not have set aside the assessment and that the correct amount to be grossed up was Rs. 1,17,500. The Tribunal looked into the annual report of the Bharat Nidhi Ltd. for the calendar year 1957, and the resolution passed at the general meeting on declaration of dividend. The relevant ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as a shareholder. In the Tribunal's view the net amount of dividend should, therefore, be taken to be Rs. 1,71,080. On the question of grossing up, the Tribunal observed that the Bharat Nidhi Ltd. held the shares of the New Central Jute Mills Co. Ltd. at cost which amounted to Rs. 12.05 per share. In these premises, the distribution of dividend in specie entailed a further release of Rs. 2.05 per share by debit to the investment reserve account. In the directors' report it was stated that : "The deficit arising out of distribution of ordinary shares in New Central Jute Mills Co. Ltd. valued at par as aforesaid be debited to investment reserve account. "The Tribunal did not express any opinion as to whether the Bharat Nidhi Ltd. could be regarded as having realised the market value of the shares by reason of release thereof for the benefit of the shareholders. The Tribunal held that the assessee received dividends in money's worth amounting to Rs. 1,71,080 and that sum had to be grossed up with reference to the percentage of taxable profits to the total profits of the Bharat Nidhi Ltd. The dividend warrant of the Bharat Nidhi Ltd. showed that this percentage amounted to 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) ; and if such a dividend has not come out of unassessed profits, the grossing up has to be made in respect of the amount actually received as dividend at the rate applicable to the dividend paying company, i. e., 95%. Now, in this reference the sections of the Indian Income-tax Act, 1922, which need consideration, are sections 16(2), 18 (5) and 49B. Section 16(2) ; inter alia, provides that for the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him and shall be increased to such amount as would, if income-tax, (but not super-tax) at the rate appplicable to the total income of the company (without taking into account any rebate allowed or additional income-tax charged) for the financial year in which the dividend is paid, credited or distributed, or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of dividend. It appears that this sub-section speaks not of the value of money's worth of the dividend to the shareholder but of the actual dividend, that is, ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame expression has been used in section 49B in relation to income-tax on the company's dividend that is deemed to have been paid by the shareholder. In other words, it is the actual amount paid to the Central Government as tax that is deemed to have been paid by the shareholder. The Bombay High Court, in explaining these provisions in Accountant-General, Baroda State v. Commissioner of Income-tax, has observed that a company is taxed in its capacity as a company ; it can never be said that a shareholder is taxed through the company ; and it is only for the purposes of avoiding double taxation that sections 49B and 48 have been enacted. The Calcutta High Court also, has observed in Angus Co. Ltd. v. Commissioner of Income-tax that the funds of the company are affected, in the case of a declaration of dividend, only to the extent of the sum which the company has to pay because of the declaration and which it would not have to pay otherwise and that sum obviously is the sum which it actually distributes as dividend. The facts in the present reference have, in our view, to be approached in the light of the relevant provisions contained in sections 16 (2), 18(5) and 49B. It seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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