1. There is an appeal by the department and cross objection by the assessee in respect of the assessment year 1983-84.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to consider the net dividend and not the gross dividend received by the assessee from a foreign company for including the total income of the assessee company.
3. At the hearing, while it was contended on behalf of the assessee that the issue is squarely covered in their favour by Tribunal's order in their over cost of sister concerns based on a decision of the Calcutta High Court in CIT v. Shaw Wallace & Co. Ltd. [1981] 132 ITR 466, the learned departmental representative pleaded that it was not.
4. In saying so, the Ld. D.R. particularly invited our attention to the observations made by the High Court in this case at page 480 stating that their Lordships' attention, was invited to an unreported decision in the case of CIT v. India Textile Agencies [IT Reference No. 80 of 1972].
5. In this case the argument advanced on behalf of the Revenue was that under Section 5(1)(c) of the Income-tax Act, 1961 the total income of any previous year of a person who is a resident of India includes all income from whatever source derived which accrues or arises to him outside India during such year. That a shareholder of a Foreign resident in India would therefore, have to be taxed on the dividend income received from a Foreign Company. Upto the year 1965 the dividend income of a shareholder in a Foreign Company was only the net dividend, but the English Finance Act, 1965 amended this position. Under the amended law vide Section 47(1) to (4) of the English Finance Act, 1965 the dividend income of a shareholder in an English company stood to be the gross dividend as against the net dividend in the past (under the old law). It was this background that an argument was made that it is the gross dividend which was liable to be included in the total income of a shareholder resident in India by virtue of Section 51 of Income-tax Act. 1961.
6. This plea was, however, not accepted in India Textile Agencies' case (supra) by the High Court of Calcutta for the only reason that the assessment year in question had ended on 31st March, 1966. The Hon'ble High Court, therefore, took the view that any foreign dividend earned by the assessee must have been earned on or before 31st March, 1966.
Explaining further their Lordships recalled the position of the "year of assessment" under the English Act, as per which the Income-tax year commenced on the 6th April and ended on the following 5th April and that the term "year of assessment" when used in the English Income-tax Act, 1952 with reference to any tax meant the year for which the tax was granted by any Act granting Income-tax.
7. We have considered the matter carefully. There is ample force in the submission made by the learned depastmental representative to the effect that in view of the change in the English Finance Act, 1965 the ratio of the decision of the Calcutta High Court in Shaw Wallace & Co.
Ltd. 's case (supra) would not govern the issue.
8. The case of the assessee indisputably falls within the ambit of Section 5(1)(c) of the Income-tax Act, 1961 which reads as under : 5(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which Naturally, any shareholder of a Foreign Company if a resident in India would be taxed on the dividend income received by him from a Foreign Company. Till 1965 the dividend income of a shareholder in a Foreign Company was only the net dividend, but this position underwent a change by the amendment made to the English Finance Act, 1965. under Section 47(1)/(2)/(4) of the English Finance Act, 1965 the dividend income of a shareholder in a English Company is the gross dividend which would mean that it is the gross dividend which is to be included in the total income of a shareholder resident in India rather than the net dividend.
9. The law laid down by the High Court of Calcutta in the case of Shaw Wallace and Co. Ltd. (supra) clearly arose out of an assessment for the assessment year 1963-64 with accounting period ending on 31st December, 1962. This being so, the term "total income" appearing in Sub-section (1) of Section 5 of the IT Act will take into its embrace the whole of the dividend, i.e., the gross amount received by a resident rather than the net dividend de hors the ratio of the Calcutta High Court decision in the case of Shaw Wallace and Co. Ltd. (supra).
10. In view of the aforesaid, the Revenue have to succeed and the appeal is allowed.
11 to 13. [These paras are not reproduced here as they involve minor issues.]