COMMISSIONER OF INCOME TAX WEST BENGAL I, CALCUTTA versus CLIVE INSURANCE CO. LTD., CALCUTTA

Citation: [1978] 3 S.C.R. 844 · Decided: 02-05-1978 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed

Judgment (excerpt)

A 
B 
c 
D 
B 
F 
G 
H 
844 
COMMISSIONER OF INCOME TAX WEST BENGAL I, 
CALCUTTA 
v. 
CLIVE INSURANCE CO. LTD., CALCUTTA 
May 2, 1978 
[Y. V. CHANDRACHUD, C.J., D. A. DESAI AND R. S. PATHAK JJ,] 
Inco1ne-tax Act, 1922, S. 49D-Reliej in respect of incomes accruing or arising 
outside the taxable territories-Warran! of payn1ent of interini dii·idend shows 
net dividend after deducting at source U.K. income-tax and certified to be so 
-Whether relief under s. 49D of the Act pernzissible to the assessee. 
The claim f_or relief under s. 49D of the Income Tax Act 1922 made by the 
respondent-assessee Company in its return for the assessment year 1'60-61, the 
relevant previous year being the calendar year 1959, in respect of the net 
dividend income of Rs. 15_.2661- after deduction of 
British 
income-tax of 
Rs. 9,881/- was rejected by the Income-tax Officer without making the reasons 
for his decision explicit. 
In appeal by the assessee, the Appellate Assistant Commissioner confirmed 
the decision of the Income-tax Officer observing that even if it be held that the 
net dividend income suffered U.K. tax by deduction; there is nothing to show· 
that the tax deducted was paid to U.K. Revenue and therefore s. 49D is not 
attracted. In further appeal by the assessee the Tribunal accepted the contention 
of the assessee and at the instance of the Revenue referred the question to the 
High Court. 
The High Court -after an exhaustive examination of the relevant 
provisions of the Income-tax Act of U.K. and the decisions bearing on the 
question confirmed the decision of the Tribunal. 
Dismissing the appeal by certificate, the Court 
HEW : I. All the requirements of s. 49D of the Income-tax 1922 read 
with Explanation have been satisfactorily established by the assessee and there-
fore the High _Court rightly answered the question in the affi.rmath'e in favour 
of the assessee. 
[854 F] 
2. To be eligible for relief under s. 49D read with its Explanation, the assessee 
must establish ~xcluding the non-disputed requirement that (i) the assessee has 
income which has accrued or arisen without taxable territory; and (ii) the 
assessee has p_aid in any country income-tax by deduction or otherwise under 
the Jaw in force in that country; (iii) in that event the assessee would be entitled 
to the deduction from Indian income tax payable by him; (iv) a sum calculated 
on such doubly taxed income at the Indian rate of tax or the rate of tax of the 
said country, 
whichever is 
lower. 
The expression 
'rate of tax of the said 
country'· must be given the meaning as set out in para (iii) of the explanation 
and in doing so the importance of the 
words 'income 
assessed in the said 
country' has to be borne in mind. 
[847 F-H] 
3. Under U.K. 1aw, the con1pany has to pay tax on its profits or gains as its 
liability and not as agent of members to whom dividend is distributed out of 
profits. Therefore, if dividend is distributed after profit or gain of the company 
is chargul to tax, it is optional with the company either to deduct or not t9 
deduct income tax paid by it from the dividend paid to members and if 1t 
chooses to exercise the option it can do so at standard rate. There is no specific 
provision under U.K. Income-taJt Act \Vhich would show that dividend income 
in U.K. in the hands of the assessee is exempt from payment of income tax. The 
company is liable to pay income-tax on its profits and gains and s. 184 enables 
the company to deduct from the dividend paid out of profits, tax at the standard 
rate for the year in which the amount payable becomes due. 
Dividends which 
represent the distribution of a taxed Fund are, therefore styled as franked income 
so far as concerns any further taxation at the standard rate, i.e. the rate at 
which deduction has been made. The assumption underlying this position is that 
the dividend represents the residue of the total incon1e wJUch has already been 
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C.I.T. CALCUTTA V. CLIVE INSURANCE CO. 
845 
taxed in the hands of the company, the fiction being that if tax was not paid 
by the company there would have been a higher dividend and therefore the 
dividend income is already taxed. The company is treated as a I~rge partne~ship 
and though this system is high1y artificial but it is a domestic expedient limited 
Jn rts oreration to U.K. 
[849 F-G, 850 B-D, 85! E] 
According to the statute law of U.K. and the interpreta

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