PADMAVATI R. SARAIYA AND OTHERS vs. COMMISSIONER OF INCOME-TAX BOMBAY CITY-1

CIVIL APPEAL No. 704/1963Supreme Court[1965] 1 S.C.R. 30722 September 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI A B9 pages
AI SummaryDismissed

What were the facts?

The assessee was a shareholder in a company that conducted business in both India and Pakistan. The company declared dividends from profits earned in both countries. For a particular assessment year, the company passed a resolution stating that half the dividend would be paid on or after a specific date, and the remaining half would be paid "within two months after remittances from Pakistan became free." The Income Tax Officer included the Pakistan portion of the dividend in the assessee's total income. The assessee appealed, and the matter reached the Supreme Court after the High Court ruled partly in favor of the assessee and partly in favor of the revenue. The appeals concerned the entitlement to relief under the Indo-Pakistan Agreement and the includibility of the entire dividend amount, including the portion payable later, in the total income.

What did the Supreme Court hold?

The Supreme Court dismissed both appeals. Regarding the first issue, the Court held that the assessee was not entitled to relief under the Indo-Pakistan Agreement because no certificate of assessment in Pakistan was produced before the Income-tax Officer, as mandated by Article VI(b). The Court reasoned that while the agreement allowed each Dominion to assess income under its own laws, it imposed restrictions on retaining tax and obligated the allowance of certain abatements only if conditions were met. For the second issue, the Court held that the Pakistan portion of the dividend had not been credited or paid within the meaning of Section 16(2) of the Act. The reasoning was that the dividend due to the assessee was not credited to a separate account making it unconditionally available for withdrawal. Therefore, it could not be included in the assessee's total income. The ratio is that for a dividend to be considered paid or credited under Section 16(2), it must be unconditionally available to the member.

What were the issues?

1. Whether the assessee is entitled to relief under the Indo-Pakistan Agreement dated December 10, 1947, for the Pakistan portion of the dividend income, considering Section 49AA of the Income-tax Act, 1922. The assessee contended that relief should be granted as per the agreement. The revenue argued that no certificate of assessment in Pakistan was produced as required by Article VI(b) of the agreement, thus disentitling the assessee to relief. 2. Whether the entire amount of dividend, including the moiety payable later, could be included in the total income of the assessee for the relevant assessment year, in light of Section 16(2) of the Income-tax Act, 1922. The assessee argued that the dividend was not paid or credited in the previous year. The revenue contended that the dividend had been credited to the company's profit and loss account and therefore should be included.

Which sections of the Income-tax Act were involved?

Section 49AA,Section 16(2),Section 34,Section 2(15),Section 23(3),Section 66A(2),Section 23A

AI-generated summary — verify with the full judgment below

.. A B c D E F G 307 PADMAVATI R. SARAIVA AND omERS v. COMMISSIONEJl OF INCOME-TAX BOMBAY Cl'f\'·1 September 22, 1964 {K. SUBBA RAo, J. C. SHAH AND S. M. SIKRI JJ.)

Income-tax Act (11 of 1922), s.r. 16(2), 49AA and lndo-Paki't"" agreement dated 10th December, 1947-Scope of.

The assessee was a share-bolder in a company carrying on business both in India and Pakistan. It declared dividend out of the profits accruing to it in both the countries. For the following year, having de- clared the dividend similarly, the company also passed a resolution that half the amount of the dividend was payable on O'f after a certain date and the balance was payable "within two months after -remittances from Pakistan became free". On the two questions, namely : (i) whether the assessee, having received the Pakistan portion of the diV'idend-income, was entitled to any relief under the provisions of the Inda-Pakistan Agreement dated 10th December, 1947, entered into between the two countries to avoid double taxation in Pursuance of s. 49AA of the Income-tax Act, 1922, and (ii) whether the entire amount of dividend including the moiety payable later could be included in t

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