ISMAIL Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The question is raised in both these petitions whether tax paid by a company which is a foreign company can be added on to the dividend paid by the company to a shareholder-assessee in computing his total income and whether such question can be raised in this course and for purpose of rectification proceedings under S.35 of the Income Tax Act 1922.

(2.) The common petitioner in these petitions was first assessed for 2 different years on the basis of his net dividends as derived from a Ceylon company. He was subsequently proceeded against under S.35 for revised assessment on basis of the gross dividends. Hence these O. Ps. challenging the respective orders And the point is raised that S.16 (2) of the Income Tax Act which provides for the grossing up as regards dividends does not apply to amounts paid by a foreign company towards income tax to a foreign State and there was no provision in the Act either which allows the amount of such tax being converted as the income of the assessee. Further proceedings under S.35 cannot also appropriately apply to cases involving this question.

(3.) Now the definition of Company in S.2(5A) confines it to Indian Companies and certain associations, Indian or foreign with which we are not concerned. This means clearly that S.16(2) with reference to grossing up of the net dividend paid to a shareholder before inclusion in the shareholders total income cannot apply to dividend from a foreign company and therefore to the dividend from the Moulana (Ceylon) Ltd., with which we are concerned. This question specifically came up for consideration in Commissioner of Income Tax v. Blundel Spencer Co. Ltd., (1952) 21 ITR 28 and Chagla, C. J. delivering the judgment of the court said: