Double taxation relief and dividend accrual: assessment proceeds under domestic law, while credit arises only when funds are unconditionally available.

Under section 49AA of the Indian Income-tax Act, 1922 and the Indo-Pakistan Agreement, assessment could be made in the ordinary way under domestic law, with relief operating only through the Agreement's abatement mechanism. The Pakistan portion of dividend income was treated as part of the assessee's total income under section 2(15). Dividend was regarded as credited or paid under section 16(2) only when it was unconditionally made available to the shareholder; the postponed moiety, not credited to a separate account and not shown to be so available, did not satisfy that test.

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Issues: (i) Whether, under section 49AA of the Indian Income-tax Act, 1922 and the Indo-Pakistan Agreement, the Pakistan portion of dividend income could be assessed in the ordinary way and whether relief was confined to abatement under the Agreement; (ii) Whether the Pakistan portion of the dividend formed part of the assessee's total income under section 2(15) of the Indian Income-tax Act, 1922; (iii) Whether the postponed moiety of the dividend was credited or paid within section 16(2) of the Indian Income-tax Act, 1922.

Issue (i): Whether, under section 49AA of the Indian Income-tax Act, 1922 and the Indo-Pakistan Agreement, the Pakistan portion of dividend income could be assessed in the ordinary way and whether relief was confined to abatement under the Agreement.

Analysis: The Agreement provided that each Dominion was to make assessment in the ordinary way under its own laws. The restriction imposed by the Agreement was on retention of tax to the extent of the prescribed excess, not on the power to assess. Article IV and the Schedule were treated as machinery for calculating abatement, and Article VI reinforced that assessment could be made first, with abatement adjusted later if the requisite certificate was produced.

Conclusion: The Pakistan portion could be assessed in the ordinary way, and relief under the Agreement was limited to the abatement mechanism. The issue was decided in favour of Revenue.

Issue (ii): Whether the Pakistan portion of the dividend formed part of the assessee's total income under section 2(15) of the Indian Income-tax Act, 1922.

Analysis: The definition of total income was applied to include dividend income received by the assessee, including the portion attributable to profits accruing in Pakistan. The Court accepted the concession that such amount fell within the statutory concept of total income and approved the view taken by the High Court.

Conclusion: The Pakistan portion of the dividend formed part of the assessee's total income. The issue was decided against the assessee.

Issue (iii): Whether the postponed moiety of the dividend was credited or paid within section 16(2) of the Indian Income-tax Act, 1922.

Analysis: Dividend is treated as paid or credited only when the company discharges its liability and makes the amount unconditionally available to the shareholder. The postponed half was not credited to any separate account of the assessee and was not shown to be unconditionally available to him. On that basis, it was not treated as a credit or payment under the statutory provision.

Conclusion: The postponed moiety of the dividend was neither credited nor paid within section 16(2). The issue was decided in favour of the assessee.

Final Conclusion: The appeals were disposed of after upholding the assessment of the Pakistan portion as income and rejecting the claim that the deferred dividend had been credited or paid, while recognising that the deferred amount did not attract tax as credited or paid within the statutory sense.

Ratio Decidendi: Under a double taxation agreement framed by section 49AA of the Indian Income-tax Act, 1922, assessment may still be made under domestic law and the Agreement operates by way of abatement; dividend is credited or paid under section 16(2) only when it is unconditionally available to the shareholder.

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