Dividend grossing up excludes foreign company tax; only Indian income-tax can be added to shareholder dividend credit.

Dividend grossing up under the Income-tax Act is confined to the Indian income-tax payable by the company on its total income, and the shareholder's credit is limited to the amount treated as paid on his behalf in respect of that Indian tax. Tax paid by the company in the United Kingdom cannot be included in the grossed-up dividend, because the grossing-up and credit provisions are self-contained and do not extend to foreign tax. Section 49B, dealing with refund, operates in a different field and does not enlarge the scope of grossing up. The question was answered in the negative.

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Issues: Whether, for the purpose of grossing up dividend income under the Income-tax Act, the tax paid by the company in the United Kingdom could be added to the dividend received by the non-resident shareholder.

Analysis: Section 16(2) permits grossing up only by reference to the income-tax payable by the company on its total income in India. The relief mechanism under Section 18(5) gives the shareholder credit for the amount treated as paid on his behalf in respect of that Indian tax. The provisions governing grossing up and credit are self-contained, and there is no warrant in those provisions for including tax paid by the company outside India. Section 49B, which deals with refund, operates in a different field and does not enlarge the scope of grossing up under Sections 16(2) and 18(5).

Conclusion: The tax paid by the company in the United Kingdom could not be added in grossing up the dividend income, and the question was answered in the negative.

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