Court allows double income-tax relief for dividend income from UK companies under Section 91 of Income-tax Act, 1961

The court held in favor of the assessee-company, determining that they were entitled to double income-tax relief under Section 91 of the Income-tax Act, 1961, for dividend income received from UK companies. The court found that the conditions for granting double taxation relief were met, including the interpretation that tax deducted at source by foreign companies constituted "income-tax paid" under the law. The court applied precedent from a prior case to support its decision, emphasizing a liberal construction of Section 91 in favor of the assessee when conditions are satisfied. The revenue was directed to pay the costs of the reference to the assessee.

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Issues Involved:
1. Entitlement to double income-tax relief under Section 91 of the Income-tax Act, 1961.
2. Conditions for granting double taxation relief.
3. Interpretation of tax deducted at source by foreign companies.
4. Application of Section 91 in the context of dividends from UK companies.

Issue-wise Detailed Analysis:

1. Entitlement to Double Income-Tax Relief Under Section 91 of the Income-tax Act, 1961
The primary issue was whether the assessee-company was entitled to double income-tax relief under Section 91 of the Income-tax Act, 1961, for dividend income received from UK companies. The Tribunal had held in favor of the assessee-company, allowing the relief, which was contested by the revenue.

2. Conditions for Granting Double Taxation Relief
The court analyzed Section 91(1) of the Income-tax Act, 1961, which provides double taxation relief under specific conditions:
- Income must have accrued outside India.
- The assessee must have paid income-tax, by deduction or otherwise, under the law in force in that country.
- Relief is calculated based on the lower of the Indian rate of tax or the rate of tax of the foreign country.

The court noted that these conditions were met in the present case.

3. Interpretation of Tax Deducted at Source by Foreign Companies
The court considered whether the tax deducted at source by UK companies from dividends constituted "income-tax paid" under the law in force in the UK. The Appellate Assistant Commissioner and the Tribunal had both held that tax deducted by UK companies fulfilled the requirement of Section 91, even if the tax was not paid over to the UK Government. The court agreed with this interpretation, citing that the deduction itself, as per UK tax law, constituted payment of income-tax.

4. Application of Section 91 in the Context of Dividends from UK Companies
The court referred to the Calcutta High Court's decision in Commissioner of Income-tax v. Clive Insurance Co. Ltd., which dealt with a similar issue under Section 49D of the Income-tax Act, 1922 (equivalent to Section 91 of the 1961 Act). The Calcutta High Court had held that sums deducted from dividends by UK companies constituted payment of income-tax by deduction under UK law, thus entitling the assessee to double taxation relief. The Gujarat High Court agreed with this reasoning and applied it to the present case.

The court emphasized that the purpose of Section 91 was to grant relief to the assessee and should be construed liberally in favor of the assessee when the requisite conditions are satisfied.

Conclusion
The court held that the assessee-company was entitled to double income-tax relief under Section 91 of the Income-tax Act, 1961, for dividend income received from UK companies. The question referred to the court was answered in the affirmative, in favor of the assessee and against the revenue. The Commissioner was directed to pay the costs of the reference to the assessee.

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