Foreign tax deducted from dividends can qualify as income-tax paid for relief under section 49D when the rate is ascertainable.

Tax deducted from United Kingdom dividends was not a pure question of fact, because it required construction of the foreign taxing statute and relevant judicial authorities; the reference was therefore competent and the preliminary objection failed. On the merits, section 49D of the Indian Income-tax Act, 1922 allowed relief where foreign income had suffered tax by deduction or otherwise under the foreign law. Tax deducted at source from dividends paid out of taxed profits in the United Kingdom was treated as income-tax suffered by the shareholder, and relief was available because the foreign tax rate could be ascertained. The reference was answered in favour of the assessee.

---

---

Issues: (i) Whether the Tribunal's finding that the assessee had paid income-tax in the United Kingdom by deduction from dividends was binding as a pure finding of fact and whether the preliminary objection to the reference should be accepted; (ii) whether the tax deducted from United Kingdom dividends constituted payment of income-tax under section 49D of the Indian Income-tax Act, 1922, so as to entitle the assessee to relief.

Issue (i): Whether the Tribunal's finding that the assessee had paid income-tax in the United Kingdom by deduction from dividends was binding as a pure finding of fact and whether the preliminary objection to the reference should be accepted.

Analysis: The finding on payment under United Kingdom law depended not merely on proved facts of deduction from dividends but on construction of the foreign taxing statute and the effect of judicial decisions under that law. Such an issue was therefore not a pure question of fact. The question referred was wide enough to include the contention that actual assessment in the United Kingdom was necessary before relief could be granted, and the reference could be entertained.

Conclusion: The preliminary objection was rejected.

Issue (ii): Whether the tax deducted from United Kingdom dividends constituted payment of income-tax under section 49D of the Indian Income-tax Act, 1922, so as to entitle the assessee to relief.

Analysis: Section 49D granted relief where a resident proved that income accruing outside the taxable territories had suffered income-tax in the foreign country by deduction or otherwise under the law there. The English income-tax scheme, read with the relevant provisions on dividend deduction and the authorities explaining tax deducted at source, treated tax deducted from dividends paid by a company out of taxed profits as tax suffered by the shareholder by deduction at source. The statutory language and the foreign law together satisfied the statutory condition. The Explanation was also workable on the facts because the rate of tax in the United Kingdom could be ascertained.

Conclusion: The assessee was entitled to relief under section 49D.

Final Conclusion: The reference was answered in favour of the assessee, and the departmental challenge to relief under section 49D failed.

Ratio Decidendi: Where dividend tax is deducted at source under the foreign law and the rate of such foreign tax is ascertainable, the amount deducted constitutes payment of income-tax by the assessee for the purposes of section 49D of the Indian Income-tax Act, 1922, and relief cannot be denied merely because there was no direct assessment in the foreign country.

---