Tax Tribunal Rules Foreign Tax Deductions Not Included in Indian Income

The Tribunal considered whether tax deducted at source outside India from foreign dividends and interest income should be included in the total income assessable under the Income-tax Act, 1961. The High Court aligned with the views of the Kerala, Calcutta, and Bombay High Courts, emphasizing that only income actually received in India should be treated as total income, not the gross income including foreign tax deductions. The Court ruled in favor of the assessee, holding that income received in India alone should be considered as actual income, rejecting the Revenue's argument to include income accrued abroad in the total income.

---

---

Issues Involved:
1. Whether tax deducted at source outside India from foreign dividends and interest income is part of the total income under the Income-tax Act, 1961.

Summary:

Issue 1: Tax Deducted at Source Outside India

The Tribunal referred the question of whether tax deducted at source outside India from foreign dividends and interest income is part of the total income and thus assessable under the Income-tax Act, 1961. The facts of the case involve the assessee/non-applicants, co-heirs of the estate of the late Rashid Khan of Bhopal, who had foreign income in the form of dividends and interest. The Income-tax Officer held that the gross income, i.e., net income plus tax deducted at source, was chargeable to income-tax. However, the Commissioner of Income-tax (Appeals) accepted the claim that only the net amount received in India could be said to have accrued or arisen to them. The Tribunal, relying on decisions from the Kerala and Calcutta High Courts, held that u/s 5(1)(c) of the Income-tax Act, only the actual receipt can be included in the total income of the assessee, and the income deemed to accrue or arise outside India is not liable to be included in the total income of the assessees.

Relevant Provisions:

- Section 5 of the Income-tax Act, 1961: Defines the scope of total income, including income received or deemed to be received in India, income that accrues or arises in India, and income that accrues or arises outside India.
- Section 198 of the Act: States that all sums deducted in accordance with various sections shall be deemed to be income received for the purpose of computing the income of an assessee.
- Section 91: Provides for relief in cases of double taxation where no agreement exists between India and the foreign country.

Judicial Opinions:

- The Kerala, Calcutta, and Bombay High Courts have consistently held that only the actual income received in India should be treated as total income, not the gross income that includes tax deducted at source abroad. This view was supported by the Tribunal.
- The Madras High Court, however, took a contrary view, suggesting that the gross dividend should be regarded as having accrued or arisen to the assessee.

Conclusion:

The High Court agreed with the views of the Kerala, Calcutta, and Bombay High Courts, stating that such income which has been actually received in India shall only be treated as actual income and not the income which accrued to the assessee abroad. The reference was answered in favor of the assessee and against the Revenue.

---