1962 (8) TMI 94 - HC - Income Tax

Court rules foreign company dividends taxable under Indian Income-tax Act; clarifies definition and tax implications

A. Veerappan and others Versus Commissioner of Income-Tax, Madras

The court ruled in favor of the department, holding that amounts received by the assessees as dividends from a foreign company were assessable under the ... - Issues:Whether amounts received by the assessees as dividends from a foreign company are assessable under the Indian Income-tax Act.Analysis:The judgment pertains to three cases where the assessees received dividends from a foreign company, which were brought to tax by the Income-tax Officer. The assessees claimed the amounts to be exempt as they were paid out of capital profits of the company. The Appellate Assistant Commissioner and the Tribunal upheld the assessment, stating that the amounts were revenue receipts includible in the taxable income of the assessees. The Tribunal emphasized that the profits received by the assessees were merely profits in their hands, even if they were capital profits in the hands of the company. The Tribunal also rejected the argument that the foreign company not being a company under the Indian Income-tax Act, the sums received were not dividends. The judgment discusses the nature of the income received by the assessees and the applicability of the Indian Income-tax Act to such receipts.The court considered the arguments presented by the counsel for the assessees, including the contention that the amounts received were capital profits not liable to tax. The court analyzed the definition of 'dividend' under the Act, stating that any distribution by a company to shareholders, irrespective of the nature of the company's income, constitutes a dividend. The court referred to a case law to support its stance that the income received by the assessees was of a revenue nature in their hands. The judgment also addressed the argument that the foreign company was not defined as a company under the Indian Income-tax Act, emphasizing the recognition of foreign companies by the comity of nations.The court discussed the applicability of the Indian Income-tax Act to the receipts from the foreign company, focusing on whether the sums received were assessable as profits under the Act. The court rejected the objection raised by the assessees regarding reframing the question, citing a Supreme Court decision. It concluded that the real issue was whether the amounts received by the assessees from the foreign company were taxable as profits under the Act. The court answered the question in the affirmative, ruling in favor of the department and awarding costs to them. The judgment provides a detailed analysis of the nature of the receipts, the definition of dividends, and the applicability of the Indian Income-tax Act to such transactions.