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Issues: (i) Whether final dividend declared by an Indian company accrued to a non-resident shareholder on the date of declaration despite restrictions under the Foreign Exchange Regulation Act, 1973; (ii) Whether the non-resident assessee could insist on assessment of dividend income on cash basis instead of accrual basis.
Issue (i): Whether final dividend declared by an Indian company accrued to a non-resident shareholder on the date of declaration despite restrictions under the Foreign Exchange Regulation Act, 1973.
Analysis: Section 8 of the Income-tax Act, 1961 treats dividend income as accruing on declaration, distribution or payment, and the use of the word "declared" is material. The restrictions in sections 9, 19 and 29 of the Foreign Exchange Regulation Act, 1973 regulate payment and remittance, but do not extinguish the shareholder's right to receive dividend. Section 47 of that Act preserves the right to bring legal proceedings in India to recover sums due, showing that the statute does not suspend the existence of the debt; the impediment, if any, operates at the stage of remittance or execution.
Conclusion: The final dividend accrued on the date of declaration and was assessable in that year.
Issue (ii): Whether the non-resident assessee could insist on assessment of dividend income on cash basis instead of accrual basis.
Analysis: The assessee's method of accounting could not displace the statutory rule of accrual for dividend income. Once the dividend had accrued on declaration, the fact that the assessee maintained books on cash basis did not postpone assessment. The claimed cash-system treatment was therefore inconsistent with the legal character of dividend income in the hands of a non-resident shareholder.
Conclusion: The claim for assessment on cash basis was rejected.
Final Conclusion: The assessments were to be redone on the basis that final dividend accrued on declaration, while the cross-objections failed.
Ratio Decidendi: Where statute fixes dividend accrual on declaration, foreign exchange restrictions governing remittance do not defer accrual if the shareholder has an enforceable right to the dividend; a non-resident cannot override that statutory accrual by adopting a cash basis of accounting.
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