Law:

Section:

Section 5 of the Income-tax Act, 1961 [Corresponding to section 4 of the Indian Income-tax Act, 1922 - Income - Accrual of - Assessment year 1951-52 - Assessee received dividend for shares held in a foreign company - ITO assessed gross amount of dividend ignoring Ceylon Income-tax that had been deducted therefrom by that company - Company was entitled to retain for itself amount so deducted from dividend and was not bound to pay same to Ceylon Government - Whether amount so deducted could not be included in taxable income of assessee as those amounts were never received by assessee nor accrued or arose to assessee and, thus, were not income of assessee - Held, yes HELD For the assessment year 1951-52 the Income-tax Officer assessed the gross amounts of the dividends ignoring the Ceylon Income-tax that had been deducted therefrom, under section 43(1) of Ceylon Income-tax Ordinance by a foreign company. The assessee contended before the AAC that it was only the net dividend that was assessable. The AAC however, confirmed the orders of the ITO. On second appeal, the Tribunal found that the income in question did not call for consideration as 'dividend', as the foreign company was not registered under the Indian Companies Act, and generally did not fall within the scope of sections 2(6), 2(6A) and 16(2) of the 1922 Act, but as income from a foreign investment, there was no provision in the Ceylon Income-tax Ordinance which distinguished the position of the tax deducted at source from dividends from that envisaged in the scheme of the Indian Income-tax Act and that under both the enactments, the tax deducted was deemed to be credited to the assessee and paid on his account. The Tribunal, therefore rejected the appeal. On reference : HELD Under the Ceylon Ordinance, on its income a company resident in Ceylon pays income-tax just like any individual. But, it is entitled to deduct from the dividends payable to a shareholder tax at twice the unit rate. The company is entitled to keep for itself the tax it has so deducted and it is not bound to pay it over to Government. It is only tax which it deducts at a rate higher than twice the unit rate in pursuance of a notice…

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