Law:

Section:

Section 16(2) of the Indian Income-tax Act, 1922 - Exemptions and exclusions in determining total income - Assessment year 1953-54 - Assessee received Rs. 8,000 as dividend from 'S' Mills Ltd. (i.e. Company) - Company had its registered office in India, but according to certificate issued under section 20 of 1922 Act, company's chargeable income to tax in taxable territory was 6.7 per cent and in Pakistan 93.3 per cent - Applying this proportion to total dividend of Rs. 8,000, income chargeable in taxable territory was Rs. 360 and income chargeable in Pakistan was Rs. 7,640 - ITO grossed up amount of Rs. 360 only for purpose of inclusion in total income of assessee, and he included amount of Rs. 7,640 without being grossed up - Tribunal, however, held that department was bound to gross up entire dividend - Whether in view of provision of section 16(2) of 1922 Act, only part of dividend that could be grossed up was that portion of dividend which came out of income of company on which tax was payable in taxable territories and not entire dividend - Held, yes - Whether, therefore, assessee was entitled to get a credit for income-tax deemed to have been paid by company in respect of said amount only - Held, yes - Whether, consequently, balance amount i.e. Rs. 7,640 was liable to be included in total income of assessee - Held, yes FACTS The assessee received amount of dividend income from 'S' Mills Ltd. (i.e. Company). The amount of the dividend was Rs. 8,000. The company had its registered office in Delhi, but according to the certificate issued under section 20 of the 1922 Act the company's income chargeable to tax in the taxable territory was 67 per cent and in Pakistan 93.3 per cent. Applying this proportion to the total dividend of Rs. 8,000 the income chargeable in the taxable territory was Rs. 360 and the income chargeable in Pakistan was Rs. 7,640. The Income-tax Officer grossed up the amount of Rs. 360 only for the purpose of inclusion in the total income of the assessee ; and he included the amount of Rs. 7,640 without being grossed up. He also made an order under article VI sub-clause (b) of the Agreement for Avoidance of Double Taxation of income between…

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