Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, two questions have been referred to us; which are as follows:
1. ' 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 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the relief under section 91 of the Income-tax Act, 1961, was available to the assessee ?'
So far as the second question is concerned, in view of the decision of the Supreme Court in the case of CIT v. Clive Insurance Co. Ltd. : 113ITR636(SC) , this question must be answered in the affirmative and in favour of the assessee. It must be remembered that Section 91 of the I.T. Act 1961, is similar to Section 49D of the Indian I.T. Act, 1922.
2. So far as the first question is concerned, the assessment year involved is 1970-71. Therefore, it was sought to be urged that in view of Section 47 of the Finance Act, 1965, of England which is again more or less in similar lines with Section 232 of the Income & Corporation Taxes Act, 1970, of England--Sch. F, the position would be different. But as the year in question is covered by the Finance Act, 1965, of England, it is instructive to set out the relevant provision of Section 47 of the said Act, which reads as follows :
'47. (1) Except as otherwise provided by this part of this Act, corporation tax shall not be chargeable on dividends and other distributions of a company resident in the United Kingdom, nor shall any such dividends or distributions be taken into account in computing income for corporation tax; but income-tax for a year of assessment after the year 1965-66 shall be chargeable under a new Schedule F in respect of all dividends and other distributions in that year of a company resident in the United Kingdom which are not charged under Schedule D or Schedule E and are not specially exempted from income-tax, and for purposes of income-tax all such distributions shall be regarded as income, however they fall to be dealt with in the hands of the recipient.
(2) Income-tax under Schedule F for any year of assessment shall be charged in respect of any distribution made in the year on such sum as, after deduction of income-tax thereon at the standard rate, equals the amount or value of the distribution after any deduction of income-tax actually made; and, subject to any enactment to the contrary, the distribution shall be deemed for purposes of income tax to represent income, of an amount equal to that sum, on which income tax has been borne by deduction :
Provided that in the case of preference dividends the tax chargeable and the amount of income represented by the dividends shall be determined by reference to the fixed gross rate of dividend.'
It appears that under Sub-section (2) of Section 47 of the Finance Act, 1965, of England, income under Sch. F for any assessment year shall be charged in respect of any distribution made in the year on such sum as, after deduction of income-tax thereon at the standard rate, equals the amount or value of the distribution after any deduction of income-tax actually made; and, subject to the enactment to the contrary, the distribution shall be 'deemed for purposes of income-tax to represent income' of an amount equal to that sum, on which income-tax has been borne by deduction. The proviso is not material for our purpose. Therefore, the purpose of this introduction is given in Simon's Taxes (Vol. D) on the corporation tax, which is revised up to April 6, 1970. There, under Division 2.101, at p. 153, it is stated as follows :
'Prior to the introduction of corporation tax, companies were assessed to income-tax in the same way as individuals except that companies did not qualify for personal reliefs and their income was not normally liable to surtax; thus their income was taxed at the standard rate. In addition, companies were liable to profits tax; immediately prior to its abolition on 5th April, 1966, this tax was levied at 15 per cent. on total profits with provision for abatement of profits of less than 12,000 per annum.
Except in the case of an overseas trade corporation, no further tax liability was incurred by a company when it distributed its profits to its members ; as far as the members were concerned the net amount received was treated as a gross dividend from which income tax had been deducted at the standard rate. Thus the company's income-tax burden was effectively passed on to the shareholders in so far as the profits were distributed.
This method of company taxation came under scrutiny on a number of occasions. The Royal Commission on the Taxation of Profits and Income in 1955, took the view that the imposition of two taxes on the same income was unsatisfactory. A Government White Paper issued in April, 1964, considered the problems of assimilating income-tax on companies (normally assessed on the basis of the income of the preceding year) with profits tax (assessed on the profits of the current year).
Towards the end of 1964, the newly-elected Labour Government decided in favour of a separate tax on company profits and also a tax on distributions, and the Chancellor of the Exchequer made the following preliminary statement :--
'The essence of my proposals is that the income of all companies and of other bodies within the scope of the profits tax shall become liable to a new corporation tax and shall cease to be liable to income-tax and profits tax....A corporation tax will be charged at a flat rate on the total income of companies for each accounting period....Companies will be required to deduct income-tax at the standard rate from dividends and other distributions of profits...and to account to the Revenue for the tax as and when it is deducted.' In his Budget speech on 6 April, 1965, the Chancellor of the Exchequer announced that corporation tax would be introduced and that distributions would be assessed to income-tax under a new Schedule F. The following advantages were claimed for the new arrangement-
(a) the United Kingdom would be brought into line with the practice generally prevailing throughout the world,
(b) retentions of profit would be encouraged,
(c) the loss to the Inland Revenue arising from the repayment of income-tax on dividends paid by companies which, for some reason or other, had not suffered income-tax on their income would be stopped, and
(d) the tax system would be simpler.
It is open to doubt whether any of these objectives, apart from (c), has been achieved. France has changed to the old United Kingdom system, Canada is contemplating a partial move in that direction and other countries have found it necessary to relieve the measure of double taxation inherent in a corporate tax system. Profits retentions have been under pressure due to increases in the corporation tax rate and the necessity of making reasonable distributions in order to encourage new finance appears to have been overlooked. Whilst a certain degree of simplification has occurred, the overall picture is one of increased complexity.'
But even if Section 47(2) is taken into consideration it would be the income of the assessee. There the taxed income would be accruing or arising abroad in the United Kingdom. Under Section 5(1)(c) of the Income-tax Act, 1961, of India read with Section 196 of the I.T. Act, 1961, of India, an income which is deemed to accrue or arise abroad (to an assessee) who is resident in India, cannot be brought to tax.
3. For the reasons in the judgment by us on July 24, 1980, in I.T. Reference No. 613 of 1972 (CIT v. Shaw Wallace & Co. Ltd.--since reported in : 132ITR466(Cal) ), question No. 1 must also be answered in the affirmative and in favour of the assessee.
4. In the premises, both the questions are answered in the affirmative and in favour of the assessee. In the facts and circumstancts, there will be no order as to costs.
Sudhindra Mohan Guha, J.
5. I agree.