Sankar Prasad Mitra, C.J.
1. This is a reference under Section 256(1) of the I.T. Act, 1961. The assessee is a company. The assessment year under consideration is 1966-67. The accounting year ended on March 31, 1966, The assessee had earned during the accounting year gross foreign dividends to the extent of Rs. 11,903. The ITO brought to tax the entire sum of Rs. 11,903.
2. Before the AAC, the assessee submitted that only the net dividend should be taxed as the provisions relating to grossing up of dividends applied only to income-tax paid by a company in India and not to tax paid by a company outside India to a foreign Govt, The AAC did not agree with the assessee and upheld the order of the ITO.
3. The Tribunal, however, agreed with the assessee that only the net foreign dividend income was taxable. The following question has been referred to us:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only the net amount of foreign dividend received by the assessee was includible in its total income under the provisions of the Income-tax Act, 1961 '
4. Mr. B. L. Pal, appearing for the department, has argued that under Section 5(1)(c) of the I.T. Act, 1961, the total income of any previous year of a person who is a resident of India includes all income from whatever source derived which accrues or arises to him outside India during such year. A shareholder of a foreign company resident in India, says, Mr. Pal, would be taxed on the dividend income received from a foreign company. Up to 1965, according to Mr. Pal, the dividend income of a shareholder in a foreign company was only the net dividend ; but the English Finance Act, 1965, amended the previous law. Under Section 47(1) to (4) of the English Finance Act, 1965, the dividend income of a shareholder in an English company is the gross dividend. It is the gross dividend thereof, which is to be included in the total income of a shareholder resident in India by virtue of Section 51 of the Act of 1961.
5. We cannot accept the contentions of Mr. Pal on the facts and in the circumstances of the instant case. We have already stated that the accounting year of the assessee in the instant case ended on March 31, 1966. Any foreign dividend earned by the assessee, therefore, must have been earned on or before March 31, 1966. Under the English Act, the income-tax year commences on the 6th April, and ends on the following 5th April, and is cited for example, for the year commencing 6th April, 1952, and ending 5th April, 1953, as the year 1952-53. The term 'year of assessment ' when used in the English Income Tax Act, 1952, with reference to any tax means the year for which the tax was granted by any Act granting income-tax, (Vide Halsbury's Laws of England, 3rd Edn., Vol.20, p. 18, art. 17).
6. We have now to consider the provisions of Section 47(1) and (3) of the English Finance Act, 1965. Section 47(1) is as follows :
' 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 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.'
7. The provisions of Section 47(3) of the English Finance Act, 1965, runs thus:
' Where, in the year 1966-67 or any later year of assessment, a company resident in the United Kingdom makes any distribution, not beinga payment of interest other than yearly interest, nor a payment in respect of which deductions or repayments of income tax may fall to be made under Section 157 (pay as you earn) of the Income Tax Act, 1952, the company shall under this sub-section account for and pay income tax in respect of the distributions at the standard rate for that year.'
8. It is obvious, therefore, that the changes which have been made in the English Act were changes introduced from the year 1966-67. The accounting year would, therefore, commence on the 6th April, 1966, and end on the 5th April, 1967. The foreign dividend income, in the instant case, was earned before the 6th April, 1966. The amended provisions, therefore, have no application to this foreign dividend income. The Tribunal's order, in these circumstances, has to be upheld. The answer to the question referred to us is in the affirmative and against the department. There will be no order as to costs.
9. I agree.