Supreme Court upholds dividend income inclusion, denies relief under Indo-Pakistan Agreement.

The Supreme Court dismissed all appeals, upholding the High Court's decisions. It was held that the Pakistan portion of the dividend income is part of the assessee's total income. The assessee was not entitled to relief under the Indo-Pakistan Agreement without a certificate of assessment. Additionally, the other moiety of the dividend was not includible in the total income for the assessment year 1953-54. All parties were directed to bear their own costs.

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Issues Involved:
1. Validity of initiation of action under section 34 for bringing to tax the net dividend income.
2. Inclusion of the Pakistan portion of the dividend income in the assessee's total income as defined in section 2(15) of the Indian Income-tax Act, 1922.
3. Entitlement to relief on the Pakistan portion of the dividend income under the Indo-Pakistan Agreement.
4. Inclusion of the other moiety of the dividend declared by the company in the total income of the assessee for the assessment year 1953-54.

Issue-wise Detailed Analysis:

1. Validity of initiation of action under section 34:
The first issue regarding the validity of proceedings under section 34 of the Act has become academic. The Commissioner of Income-tax did not appeal against the High Court's judgment dated April 14, 1960, which answered the supplementary question in favor of the assessee. Therefore, this issue was not discussed further.

2. Inclusion of the Pakistan portion of the dividend income:
Mr. Viswanatha Sastri conceded that the Pakistan portion of the dividend forms part of the assessee's total income as defined in section 2(15) of the Act. The High Court followed its earlier judgment in Commissioner of Income-tax v. Shanti K. Maheshwari and answered this question against the assessee. The Supreme Court upheld the High Court's decision, affirming that the Pakistan portion of the dividend is indeed part of the assessee's total income.

3. Entitlement to relief under the Indo-Pakistan Agreement:
This issue involved the interpretation of section 49AA of the Act and the Indo-Pakistan Agreement dated December 10, 1947. The court examined Articles IV and VI of the Agreement. Article IV states that each Dominion shall make assessments in the ordinary way under its own laws and allow an abatement on the excess amount calculated according to the Schedule. Article VI outlines the procedure for abatement and the conditions under which it should be allowed. The court concluded that each Dominion can make an assessment regardless of the Agreement but must allow abatement on the excess amount as per the Schedule. Since no certificate of assessment in the other Dominion was produced, the court agreed with the High Court that the answer to this question is in the affirmative.

4. Inclusion of the other moiety of the dividend:
The High Court, following the decision in Commissioner of Income-tax v. Laxmidas Mulraj Khatau, concluded that the resolution created only a contingent liability, and thus, the dividend could not be considered paid in the previous year of the assessment year 1953-54. The Supreme Court referenced its decision in J. Dalmia v. Commissioner of Income-tax, which dissented from the Laxmidas Mulraj Khatau decision. The court emphasized that for a dividend to be considered paid or credited within the meaning of section 16(2) of the Act, it must be unconditionally available to the member. The court found that the dividend due to the assessee was not credited to a separate account, and thus, the Pakistan portion of the dividend was not credited or paid within the meaning of section 16(2). The answer to this question was in the negative.

Conclusion:
All the appeals were dismissed, and all parties were directed to bear their own costs. The Supreme Court upheld the High Court's decisions on all the issues, concluding that the Pakistan portion of the dividend forms part of the total income, the assessee was not entitled to relief under the Indo-Pakistan Agreement without a certificate of assessment, and the other moiety of the dividend was not includible in the total income for the assessment year 1953-54.

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