Case: Padmavati R. Saraiya And Others Vs. Commissioner Of Income-Tax Bombay City-1

excess of the amount calculated according to the percentage specified, in columns 2 and 3 thereof, that Dominion shall allow an abatement equal to the lower amount of tax payable on such excess in either Dominion as provided for in Article VI.Article VI.-(a) For the purposes of the abatement to be allowed under Art. IV or V, the tax payable in each Dominion on the excess or the doubly taxed income, as the case may be shall be such proportion of the tax payable in each Dominion as the excess or the doubtly taxed income bears to the total income of the assessee in each Dominion.(b) Where at the time of assessment in one Dominion, the tax payable on the total income in the other Dominion is not known, the first Dominion shall make a demand without allowing the abatement, but shall hold in abeyance for a period of one year (or such longer period as may be allowed by the Income-tax Officer in his discretion) the collection of a portion of the demand equal to the estimated abatement. If the assessee produces a certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income-tax Officer, the uncollected portion of the demand will be adjusted against the abatement allowable under this Agreement; if no such certificate is produced, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith."15. It seems to us that the opening sentence of Art. IV of the Agreement that each Dominion is entitled to make assessment in the ordinary way under its own laws clearly shows that each Dominion can make an assessment regardless of the Agreement. But a restriction is imposed on each Dominion and the restriction is not on the power of assessment but on the liberty, to retain the tax assessed. Art. IV directs each Dominion to allow abatement on the amount in excess of the amount mentioned in the Schedule.The scheme of the Schedule is to apportion income from various sources among the two Dominions. In the case of Dividends each Dominion is entitled to charge "in proportion to the profits of the company chargeable by each Dominion under this agreement." This refers us back to the other items. For instance, in respect of goods manufactured by the assessee partly in one Dominion and partly in the other, each Dominion is entitled to charge on 50% of the profits. But the Schedule does not limit the power of each Dominion to assess in the normal way all the income that is liable to taxation under its laws. The Schedule has been inserted only for the purpose of calculating the abatement to be allowed.16. Article VI also leads to the same conclusion. For if no assessment could be made on the amount on which abatement is to be allowed, there could be no question of making a demand without allowing the abatement and holding in abeyance for a period the collection of a portion of the demand equal to the estimated abatement.17. It is common ground that no certificate of assessment in the other Dominion has been produced before the Income-tax Officer. We agree with the High Court that the answer to this question is in the affirmative.18. The other question that remains is question D, set out above. The High Court approached the question in the light of the decision of the Bombay High Court in Commissioner of Income-tax, Bombay City II v. Laxmidas Mulraj Khatau, 1948-16 ITR 248 : (AIR 1948 Bom 404 ). It came to the conclusion that the resolution created only a contingent liability, and, therefore, the dividend could not be said to have been paid in the previous year of the asessment year 1953-54. Mr. Gupte, the learned Additional Solicitor General, has urged that this view is wrong but that in view of the recent decision of this Court in J. Dalmia v. Commissioner of Income-tax, New Delhi,1964-53 ITR (SC) 83: (AIR 1964 SC 1866 ), it is not necessary to decide this point as this Court has dissented from the decision in 1948-16 ITR 248 : (AIR 1948 Bom 404 ). He, however, urged that the amount had been credited within the meaning of S. 16 (2) of the Act. He said that the profit and loss Account of the Company was debited with Rs. 5,85,000, that being the total amount of dividend declared. The corresponding credits, he points, out were given as follows:-"To seventh Dividend Account (being the amount payable to share-holders). 5,74,144-4-0To Income-tax Reserve Account (being the amount of income-tax deducted on dividend warrant) 10,500-0-0Non-resident shareholder super-tax Account (being the amount of super-tax deducted from the dividend payable to non-resident shareholders). 355-12-0."19. Subsequently, after making payment, the seventh dividend account showed a credit balance of Rs. 2,92,500 representing a moiety of the dividend that remained to be paid out of the total dividend declared of Rs. 5,85,000.20. We are unable to accept the contention. In 1964-53 ITR (SC) 83: (AIR 1964 SC 1866 ), Shah, J., speaking for the Court had observed:-"In general, dividend may be said to be paid within the meaning of S. 16 (2) when the Company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto".This condition must also be fulfilled in case a dividend is credited. In other words, the credit must be in such form that the dividend is unconditionally available to the member.21. It will be noticed that the dividend due to the assessee has not been credited to any separate account of the assessee, so that he could, if he wished, draw it. Before the High Court it was never suggested that the dividend was credited or distributed. Accordingly we hold that the Pakistan portion of the dividend has not been credited or paid within the meaning of S. 16 (2) of the Income-tax Act. The answer to the question is, therefore, in the negative.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. It is not necessary to discuss the first question which raises the point of the validity of proceedings under S. 34 of the Act. because it is common ground that it has become academic. This common ground is based on the fact that the Commissioner of Income-tax has not appealed against the judgment of the High Court, dated April 14, 1960. By this judgment the High Court had answered the supplementary question in favour of the Assessee A12. Regarding the second question.Mr Vishwanath Sastri rightly concedes that the Pakistan portion of the dividend forms part of the assessees total income as defined in S. 2 (15) of the Act. The High Court had followed its earlier judgment in the Commissioner of Incometax, Bombay City II v. Shanti K. Maheshwari, 1958-33 ITR 313: (AIR 1958 Bom478).We hold that the High Court was right in answering this question against the Assessee A.It seems to us that the opening sentence of Art. IV of the Agreement that each Dominion is entitled to make assessment in the ordinary way under its own laws clearly shows that each Dominion can make an assessment regardless of the Agreement. But a restriction is imposed on each Dominion and the restriction is not on the power of assessment but on the liberty, to retain the tax assessed. Art. IV directs each Dominion to allow abatement on the amount in excess of the amount mentioned in the Schedule.The scheme of the Schedule is to apportion income from various sources among the two Dominions. In the case of Dividends each Dominion is entitled to charge "in proportion to the profits of the company chargeable by each Dominion under this agreement." This refers us back to the other items. For instance, in respect of goods manufactured by the assessee partly in one Dominion and partly in the other, each Dominion is entitled to charge on 50% of the profits. But the Schedule does not limit the power of each Dominion to assess in the normal way all the income that is liable to taxation under its laws. The Schedule has been inserted only for the purpose of calculating the abatement to be allowed.16. Article VI also leads to the same conclusion. For if no assessment could be made on the amount on which abatement is to be allowed, there could be no question of making a demand without allowing the abatement and holding in abeyance for a period the collection of a portion of the demand equal to the estimated abatement.17. It is common ground that no certificate of assessment in the other Dominion has been produced before the Income-tax Officer. We agree with the High Court that the answer to this question is in the affirmative.It will be noticed that the dividend due to the assessee has not been credited to any separate account of the assessee, so that he could, if he wished, draw it. Before the High Court it was never suggested that the dividend was credited or distributed. Accordingly we hold that the Pakistan portion of the dividend has not been credited or paid within the meaning of S. 16 (2) of the Income-tax Act. The answer to the question is, therefore, in the negative.