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The Commissioner of Income-tax Vs. Major K.C. Goldie - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai
Decided On
Case NumberCivil Reference No. 11 of 1930
Judge
Reported in(1931)33BOMLR776; 136Ind.Cas.170
AppellantThe Commissioner of Income-tax
RespondentMajor K.C. Goldie
Excerpt:
.....1922, and assessed to income-tax in british india, should not be taken into account as part of the total income of the assessee for the purposes of income-tax assessment under the act. ;where an assessee is a person liable to assessment to indian income-tax in respect of part of his income, he is entitled, under section 48 of the indian income-tax act, 1922, to a refund of indian income-tax in respect of the sums or dividends received by him from sterling companies registered and with their share register in the united kingdom but satisfying the definition of a company in section 2(6) of the act. ;certificates under section 20 of the indian income-tax act, 1922, signed by the principal officer in the united kingdom of the companies above mentioned are valid certificates for the purposes..........and it appears to me to be quite clear that he is not so liable. the companies themselves have paid income-tax in respect of income which accrues or arises in india, but the dividends which those english companies pay to the assessee, who is resident in england, are simply a debt payable by an english debtor to an english creditor, and the source from which the debtor obtains the money with which he pays is irrelevant. it seems to me clear that these dividends are not income which accrues or arises in british india, and they are plainly not received in british india. therefore, by virtue of section 4 of the indian income-tax act that income is not liable to assessment.5. the second question which arises is as to whether the assessee is entitled to a refund under section 48 of the.....
Judgment:

Beaumont, C.J.

1. This is a reference by the Commissioner of Income tax under Section 66 asking for our opinion on three questions which he states in paragraph 8 of the case.

2. It appears that the assessee, Major Goldie, is entitled to income derived from four sources set out in paragraph 4 of the case. The first is dividends paid in India by companies registered in British India. The second source is dividends paid in the United Kingdom by companies doing business in British India but registered in London and having their head offices in London, and, I understand, also having their share register in London, though that fact is not stated. The third source is interest earned in British India and the fourth source is income accruing, arising and received outside British India.

3. The questions arise in respect of the second source, i.e., dividends paid in the United Kingdom by companies doing business in British India, but registered in London and having their head offices in London. The particular companies from which the income is derived are admitted to be companies within the definition contained in Section 2(6) of the Indian Income-tax Act.

4. The first question is, whether the assessee is liable to be asssessed in respect of income derived from those companies, and it appears to me to be quite clear that he is not so liable. The companies themselves have paid income-tax in respect of income which accrues or arises in India, but the dividends which those English companies pay to the assessee, who is resident in England, are simply a debt payable by an English debtor to an English creditor, and the source from which the debtor obtains the money with which he pays is irrelevant. It seems to me clear that these dividends are not income which accrues or arises in British India, and they are plainly not received in British India. Therefore, by virtue of Section 4 of the Indian Income-tax Act that income is not liable to assessment.

5. The second question which arises is as to whether the assessee is entitled to a refund under Section 48 of the Indian Income-tax Act. That section is in these terms:--

48(1) If a shareholder in a company who has received any dividend therefrom satisfies the Income-tax Officer...that the rate of income-tax applicable to the profits or gains of the company at the time of the declaration of such dividend is greater than the rate applicable to his total income of the year in which such dividend was declared, he shall, on production of the certificate received by him under the provisions of Section 20, be entitled to a refund on the amount of such dividend (including the amount of the tax thereon) calculated at the difference between those rates,

6. There is no doubt that the present assessee, Major Goldie, is a shareholder in a company as defined by the Act who has received a dividend therefrom. Therefore, he is a person to whom, prima facie, the section applies. He has then got to satisfy the Income-tax Officer that the rate of income-tax applicable to the profits or gains of the company in question at the time of the declaration of such dividend (which was eighteen pies) is greater than the rate applicable to his total income of the year.

7. Now, in order to ascertain what his total income of the year is one has to look, first of all, at the definition in Section 2(16) of the Indian Income-tax Act, which says:--

'total income' means total amount of income, profits and gains from all sources to which this Act applies computed in the manner laid down in Section 16;

therefore, he must have a total income to which the Act applies, that is by virtue of Section 4 an income accruing, or arising or received in British India. If he has got such a total income, then it seems to me that he comes within the section. In the case of Major Goldie he has such an income. He is assessable in respect of the first source of income, being dividends paid in India by companies registered in British India, although having regard to Section 14(2), if the company has paid the tax, the shareholder will not have to pay it over again. He is also assessable in respect of the third source of income, which is interest earned, in British India. Therefore, it seems to me that he is entitled to claim a refund.

8. In ascertaining the amount of his total income for the purposes of calculating a refund the provisions of Section 48(4) have to be borne in mind. That sub-section does not contain, in my view, a further definition of the total income, but for the purposes of Section 48 it adds certain sources of income to the total income defined in Section 2(15), and it provides that total income is to include, in the case of any person not resident in British India, all income, profits and gains wherever arising, accruing, or received, which, if arising, accruing or received in British India, would be included in the computation of total income under Section 16 So that for the purpose of ascertaining the total income under Section 48, you have to take the total world income, that is, in the case of Major Goldie, all the sums set out in paragraph 4 of the case, which I understand to be gross income before any deduction in respect of English or Indian Income-tax. As I understand from the case that this total world income would be liable to be assessed at the rate of twelve pies, and as the company has been assessed at the rate of eighteen pies, I think that the assessee is entitled to a refund at the rate of six pies.

9. With regard to the actual questions put to us, we are disposed to think that they are too wide to be answered in the actual form in which they are put.

10. I propose to answer question (1) by saying that dividends received outside British India from sterling companies registered and with their share register in the United Kingdom but satisfying the definition of a company in Section 2(6) of the Act and assessed to income-tax in British India, are not to be taken into account as part of the total income of the assessee for the purposes of income-tax assessment. No question of super-tax arises, and I do not propose to deal with that.

11. With regard to question (2), I think the answer should be that the assessee being a person liable to assessment to Indian income-tax in respect of part of his income, a refund of Indian income-tax is admissible in respect of the sums, or dividends received by him from the companies referred to in the answer to question (1).

12. Question (3) has not been argued and it is admitted that the answer should be in the affirmative.

13. I think I ought to say, in view of the observations of the learned Commissioner appearing in the case, that the question whether the assessee would be entitled to the deduction claimed if he had no income assessable to tax under the Indian Income-tax Act does not arise, but my own view is that in such a case the shareholder has no total income to which the Act applies, and therefore Section 48 would have no application in such a case. No order as to costs.

Murphy, J.

14. I would answer the questions in the same sense. Major Goldie's income consists of four items. Of these the first was a dividend paid in India by a company registered in British India, and the second a dividend paid in the United Kingdom by a company doing business in British India but registered in London and having its head office in London. The third an item of Rs. 10 interest paid him in India and the last income accruing wholly outside British India. Two of these are items on which income-tax would ordinarily be assessable in India, and one of which is totally exempt from the tax.

15. The question before us is whether the second kind or (b) income derived from the dividend paid by the company registered in England but doing business in India can be included within the definition of 'total' income under Section 23(8). This is a charging section only and refers to 'total' income without defining it. The definition is in Section 2(15), and is as follows--:

'total income' means total amount of income, profits and gains from all sources to which this Act applies computed in the manner laid down in Section 16;

and Section 16 includes in total income sums actually exempted from the tax under the proviso to Sub-section (1) of Section 7, provisos to Section 8, Sub-section 2 of Section 14, and sums falling within Section 15. Major Goldie's (b) item of income would fall within Sub-section (2) of Section 14 as having already paid income-tax in the hands of the company. But Major Goldie is not resident in India, and the dividend was paid to him by the head office of the company in England. I think that in those circumstances the Act does not apply to this item, and that it cannot be reckoned as part of his total income under the definition.

16. But, as pointed out by the learned Chief Justice, the questions put to us really turn on whether Major Goldie is or is not entitled under Section 14(2) to a refund of the income-tax already paid on this dividend by the company, being the difference between the rate at which the company has paid, and the rate at which he would have to pay according to his total income.

17. Major Goldie has some income in India, which is assessable under the Act, though being below the minimum it would not in his case be taxed, and it seems to me that being an assessee, he is entitled to a refund of Indian income-tax on sums received by him as dividend from the company referred to under item (b) on his income.

18. I, therefore, answer the questions put to us as has been done by the Honorable the Chief Justice.


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