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TMI Blog1936 (5) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in accordance with Section 14(2)? 2. The question arises out of the assessment for the year 1932-33 to be made upon the Hungerford Investment Trust, Ltd., a company registered outside British India which will be herein referred to as "the assessee." The assessee holds the whole of the ordinary share capital in a company called Turner Morrison & Co., Ltd., registered in India, which will be herein referred to as "the company." In the year of account 1931-32 the assessee received as dividend upon its shares in the company, two sums as follows, namely, (a) rupees three lakhs being final dividend declared on 16th April 1931, by the company in respect of the calender year 1930, and (b) rupees one and a half lakhs being an interim dividend declared on 3rd November 1931, by the company in respect of the calender year 1931. 3. The profits and gains of the company for the year 1930 were assessed to Indian Income Tax in the year of assessment 1931-32. On the basis of that investigation the Commissioner for Income Tax purports to find as facts that 2 per cent of the company's profits and gains in 1930 consisted of interest on tax free securities of the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such profits or gains have been assessed to Income Tax. 5. The Income Tax Act, as Sections 19(a) and 23 make clear, requires a return to be made by every company, as well as by every person other than a company whose total income is, in the Income Tax Officer's opinion, of such an amount as to render such person liable to income tax. This brings about the principle or method which is sometimes described as double assessment and sometimes as assessment at the source (as distinct from deduction at the source which is employed in the case of "interest on securities" and "salaries"). The method of double assessment is applied not only in the case of companies but in the case of firms, Hindu undivided families, and other associations of individuals. When a company has made its return of the profits and gains in the year of account, that is of what the Act calls the "total income" of the company daring the previous year, the Income Tax Officer, if satisfied that it is correct and complete, is directed by Section 23(1) that he shall assess the total income of the assessee and shall determine the sum payable on the basis of such return. If the return i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Section 14, but it is difficult to regard them as decisive in favour of either side to the controversy. The contention on the part of the assessee is in effect that Clause 14(2)(a) is satisfied in any case in which the company has been assessed to Income Tax in respect of its profits or gains in the relevant year. If it has been assessed at all it has presumably been assessed upon its "total income" within the meaning of the Act; and the fact that it may have been in receipt of sums distributable as dividend, but not chargeable to Indian Income Tax because not profits or gains to which the Act applies, does not, upon this view prevent the clause from freeing the dividend received by the shareholder from any further payment of tax. 8. The view contended for by the Income Tax authorities has been put in different ways. The Commissioner of Income Tax in giving his opinion upon the reference, drew a distinction between income that is specifically exempt under the Act, Rule g., agricultural income, or income from tax-free securities, and what he calls (somewhat unfortunately having regard in particular to Section 34 of the Act) "income that has merely escaped assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly illustrated by the circumstance that the Commissioner in the present case does not claim to charge the assesses with tax upon the sum of ₹ 7,500, being the proportion of the assessee's dividend which he brings within the ambit of the second proviso of Section 8. Indeed it is clearly inadmissible to read "all the profits or gains of the company have been assessed" or "the total profits or gains" in expansion of the phrase used by the section, since even if it could be shown that some of the assessable profit of the company had escaped assessment it cannot be supposed that instead of dealing with the matter Under Section 34 by making an additional assessment on the company the Income Tax Officer is to be at liberty to raise it vis-a-vis the individual shareholder. Before the Board, however, another construction of clause (a) was propounded. It was stated in the appellant's case as reason No. 5: Alternatively because Section 14(2) confers exemption only upon that part of the aforesaid dividends, which was paid, or may be taken to have been paid out of the profits of Turner Morrison & Co., which were assessed to Income Tax. 10. This view may pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction which raises so important a matter and then leaves it utterly at large is not without grave difficulty. It is also to be observed that the construction proposed assumes that it is possible and reasonable to ascertain whether and to what extent a particular dividend represents, to use a neutral term, profits brought to charge in the hands of the company. No doubt a rule of proportion can be applied as is proposed in the present case, but no such rule has been laid down by the Act and the construction contended for involves difficulty in the absence of a rule. Indeed the Commissioner himself has not unreasonably argued that in the case of dividends it is not possible to say what funds they were paid from: "Payments are made out of one pool of liquid assets on account of one liability or another. There is no separate pool of profits still less of each separate type of profits." He suggests, however, that the legislature intended to leave "this very difficult relation of the dividends and the profits to be wholly determined as facts." 12. In the case before the Board, in order to obtain an authoritative ruling on the construction of Clause 14(2)(a), an adm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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