Sabyasachi Mukharji, J. - (1.) The assessee is a company. The assessment year involved is 1963-64, and the relevant accounting year ended on December 31, 1962. The assessee-company received a net dividend of Rs. 2,29,948 from certain companies in the United Kingdom and Ceylon. The said amounts were paid to the assessee-company after deduction of certain taxes which the companies had to pay. The net dividend was received by the assessee. The ITO was of the view that the gross dividend of Rs. 3,77,501 was liable to be taxed as it was in the nature of income within the provisions of Section 5(1)(c) of the I.T. Act, 1961.
(2.) The assessee, being aggrieved, preferred an appeal before the AAC. It was urged before him that only the net foreign dividend received by the assessee should be taxed and not the gross dividend. The AAC was of the view that the tax deducted in the United Kingdom and Ceylon had to be ignored and only the net foreign dividend had to be taxed. In that view of the matter, the AAC allowed the assessee's contention.
(3.) Being aggrieved, the revenue went up in appeal before the Tribunal. It was urged before the Tribunal that it was the gross dividend that should be taxed and not the net dividend. According to the revenue, under s, 5(1)(c) all incomes which accrue or arise to the assessee outside India should be included in the total income. It was submitted by the revenue that the AAC was not right in holding that the taxes deducted in foreign countries had to be ignored and the net dividend alone should be taxed. On behalf of the assessee, the order of the AAC was sought to be justified. After considering the rival contentions, the Tribunal was of the opinion that in the instant case the amounts deducted towards taxes in the foreign countries never accrued to the assessee nor it had any right to get back what was paid in U.K. and Ceylon as taxes. The assessee had received only the net dividend which had accrued to it. In that view of the matter, relying on certain authorities, which we shall presently note, the Tribunal upheld the order of the AAC. In these circumstances, at the instance of the revenue, the following question was referred to this court under Section 256(1) of the I.T. Act, 19611 "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only the net foreign dividend received by the assessee was includible in its total income under the provisions of the Income-tax Act, 1961 ?";