Law:

Section:

Section 2(22) of the Income-tax Act, 1961 [Corresponding to section 2(6A), read with section 16(2) of the Indian Income-tax Act, 1922] - Deemed dividend - Assessment year 1942-43 - Assessee received dividend from two companies registered in UK and carrying on business in British India - Dividend warrants showed gross amounts of dividends declared, tax deducted by company and net amounts paid to assessee - Rate applicable to total income of both companies was 40 pies in rupees - For purposes of section 16(2) of 1922 Act, Tribunal took gross dividends and grossed them up at rate of 40 pies in rupee and included those amounts in income of assessee - Whether amounts released by companies to assessee were amounts actually paid to him, and Tribunal should therefore have "grossed up" net dividends and not gross dividends - Held, yes - Whether, consequently, impugned order of Tribunal was to be set aside - Held, yes FACTS The assessee, received dividends from two companies registered in the United Kingdom and carrying on business in British India. The dividend warrants, as required by law, showed the gross amounts of the dividends declared the tax deducted by the company, and the net amounts paid to the assessee. The rate applicable to the total income of each company was 40 pies in the rupee. For the purposes of section 16(2) of 1922 Act, the Tribunal took the gross dividends and "grossed them up" at the rate of 40 pies in the rupee, and included those amounts in the income of the assessee. On instant reference, the assessee contended that the Tribunal should have taken the net dividends and "grossed them up" and included only those amounts in the income of the assessee. On reference: HELD A dividend is defined in clause (a ) of section 2(6A) of 1922 Act as including "any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company". The amounts released by the companies to the assessee were the amounts actually paid to him, and the Tribunal should therefore have "grossed up" the net dividends and not the gross dividends. Section…

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