Foreign tax deduction at source does not reduce an annuity's full character as taxable income.

An annuity payable to an assessee remained taxable as the full amount, even though the payer retained part of it under a foreign tax mechanism and remitted only the balance. The foreign deduction at source merely altered the mode of collection and discharged the payer to the extent of the amount retained; it did not reduce the character or quantum of the annuity as the assessee's income. The Indian provisions on deduction at source and deemed receipt did not support taxing only the net amount actually received. The full annuity was therefore rightly included in total income.

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Issues: Whether the full annuity of 500, or only the net amount of 225 actually received after deduction of foreign tax, fell to be included in the assessee's total income for assessment purposes.

Analysis: The amount payable under the annuity remained the assessee's income notwithstanding that the payers, under English tax law, retained a part of it to meet the tax chargeable on the annuity. The foreign statutory mechanism merely shifted the machinery of collection to the payer and created a discharge to the annuitant upon payment of the residue; it did not alter the character of the entire annuity as income of the assessee. The deduction at source did not extinguish any part of the debt owing to the assessee, but only satisfied it in the manner prescribed by law. The provisions relied upon in the Indian Act dealing with deduction at source and deemed receipt did not support the contention that only the net amount was income in the assessee's hands.

Conclusion: The full amount of 500 was rightly included in the assessee's total income, and the contention that only 225 was assessable failed.

Ratio Decidendi: Where an amount is payable as income to an assessee, the fact that a portion is retained by the payer under a foreign statutory tax mechanism does not change the character of the whole amount as the assessee's income for Indian tax purposes.

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