1938 (3) TMI 22 - HC - Income Tax

Court Rules Interest on Foreign Investments Not Taxable in India

Commissioner of Income-tax Versus New India Assurance Co. Ltd.

The court ruled that interest accruing on dollar and sterling securities, though included in the company's profits and dividend declaration in India, was ... - Issues:1. Whether interest accruing on dollar securities and sterling securities, not actually received in British India, should be treated as constructively received in India for taxation purposes.Analysis:The judgment pertains to a reference by the Commissioner of Income-tax under Section 66(2) of the Indian Income-tax Act regarding the treatment of interest accruing on foreign investments. The Commissioner argued that the interest, though not physically received in British India, should be deemed as brought into India due to its inclusion in the company's profits and subsequent dividend distribution in India. However, the court emphasized that for income to be considered received in India, it must be transmitted or invested in India, not merely included in accounts. The court relied on the provisions of Section 4 of the Income-tax Act, which specify that income deemed to be received in India must align with the Act's provisions. The judges highlighted that the mere inclusion of foreign interest in the company's profits and dividend declaration does not constitute actual receipt in India unless proven otherwise.The judges analyzed the construction of Section 4 of the Income-tax Act, emphasizing that income must be received in India to be taxable. The court noted that the company's interest on foreign securities was reinvested and retained outside India, not remitted to India. The judges rejected the argument that including foreign interest in the balance-sheet or dividend declaration implied receipt in India. They referred to a precedent where profits distributed among shareholders did not establish receipt in the relevant jurisdiction. The court concluded that the interest on foreign investments, not physically brought into India, cannot be deemed received in India for taxation purposes.In conclusion, the court ruled that the interest accruing on dollar and sterling securities, though included in the company's profits and dividend declaration in India, was not physically received in India and therefore should not be treated as constructively received. The judgment emphasized the necessity of actual receipt or investment in India for income to be taxable under the Income-tax Act. The judges concurred that the questions raised should be answered in the negative, and the assessees were awarded costs from the Commissioner of Income-tax.