D.A.DESAI - (1.) THE Revenue in this appeal by certificate questions the correctness of the judgment of the Calcutta High Court in income-tax Reference No. 138 of 1967 in which the Income-tax Appellate Tribunal, Calcutta Bench 'A', referred the following question to the High Court for its opinion: "Whether on the facts and in the circumstances of the case, the assessee could be said to have paid income-tax in U. K. be deduction or otherwise in respect of the net dividends of Rs. 15,266 so as to be eligible for the relief contemplated by S. 49-D of the Indian Income-tax Act, 1922?''
(2.) THE respondent assessee is a resident Company carrying on business of general insurance. THE Company held shares of U. K. based joint stock companies. THE net dividend income in respect of the shares held by it amounted to Rs. 15,266.00 after deduction of British Income-tax of Rs. 9,881.00, the amount being stated in rupee equivalent of the pound sterling. For the assessment year 1960-61 relevant previous year being the calendar year 1959, the assessee applied for relief under S. 49-D of the Indian Income-tax Act, 1922 (for short 'the Act'). THE I. T. O. declined to grant the relief but the reasons for the decision were not made explicit. In appeal by the assessee, the Appellate Assistant Commissioner confirmed the decision of the Income-tax Officer observing that even if it be held that the net dividend income suffered U. K. tax by deduction, there is nothing to show that the tax deducted was paid to U. K. Revenue and, therefore, S. 49-D is not attracted. In further appeal by the assessee, the Tribunal accepted the contention of the assessee and at the instance of the Revenue, referred the question hereinabove set out, to the High Court. THE High Court after an exhaustive examination of the relevant provisions of Income-tax Act of U. K. and the decisions bearing on the question, confirmed the decision of the Tribunal. The Assessee claims relief in respect of the income arising outside the taxable territory under S. 49-D of the Act. The relevant portion of S. 49-D reads as under : "49-D. Relief in respect of incomes accruing or arising outside the taxable territories:- (1) If any person who is resident in the taxable territories in any year proves that, in respect of his income which accrues or arises during that year without the taxable territories (and which is not deemed to accrue or arise in the taxable territories), he has paid in any country, with which there is no reciprocal arrangement for relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower. (2)-(3)xxxx Explanation- In this section,- (i)-(ii)xxxx (iii) the expression "rate of tax of the said country'' means income-tax and super-tax actually paid in the said country in accordance with the corresponding law of the said country after deduction of all reliefs due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income assessed in the said country''. To be eligible for relief under Section 49-D read with its explanation, the assessee must establish excluding the non-disputed, requirement that: (i) the assessee has income which has accrued or arisen without taxable territory; and (ii) the assessee has paid in any country income-tax by deduction or otherwise under the law in force in that country; and (iii) in that event the assessee would be entitled to the deduction from Indian income-tax payable by him; (iv) a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is lower. The expression 'rate of tax of the said country' must be given the meaning as set out in para. (iii) of the explanation and in doing so the importance of the words 'income assessed in the said country' has to be borne in mind.
(3.) THERE is no controversy that the assessee is a resident company and has dividend income from the U. K. based joint stock companies, i.e. income accruing without taxable territory. Admittedly there is no reciprocess arrangement for, relief or avoidance of double taxation between India and U. K. The assessee has received dividend income. A specimen dividend warrant issued in favour of assessee reads as under: "STOCKHOLDERS ARE PARTICULARLY REQUESTED TO NOTIFY THE COMPANY OF ANY CHANGE OF ADDRESS 12125J. LYONS AND COMPANY LIMITED. Ordinary and 'A' Ordinary Stock. Annexed is a warrant in payment of Interim Dividend on your Stock on account of the year ending 31/03/1960. Gross Dividend of 1s L per L 1 unit on JUDGEMENT_161_3_1978Html1.htm The Clive Insurance Co. Ltd., Clive Buildings, 8, Netaji Subhas Road, Calcutta. I hereby certify that income-tax on the profits of the company 166 of which profits this dividend forms a portion, has been or will be duly paid to the proper officer for the receipt of taxes. This voucher will be accepted by the Inland Revenue as proof of the deduction of the tax in claiming the exemption from or return of income-tax. H. E. Lofthouse, secretary, 1/12/1959 Cadby Hall, London, W. 14.;