ORDER
M.A. Ajinkya, Accountant Member
1.The following two grounds are raised in this appeal by the assesses:
1. The dividend income of your appellants be held to be the income received by them in Panama, in US Dollars converted into Indian Rupees as per rule 115 of the Income-tax Rules, 1962 plus the tax deducted at source.
2. The 2nd Interim (1979) dividend of Rs. 68,04,000 be held not to be the income of the previous year relevant to the assessment year under consideration as it was not unconditionally made available in that year.
2. The appellant herein, Pfizer Corporation, is a company assessed directly as a non-resident. The company is incorporated in Panama, USA. M/s. Pfizer Ltd., Bombay, is a subsidiary of the assessee-company in India. The assessee had declared income by way of dividend received from the Indian company and such dividend income has been brought to tax during the relevant assessment year which is the assessment year 1980-81 for which the accounting year is the year ended 30-11-1979. It would appear that the assessee requested, as in the past, that Rule 115 of the IT Rules be applied for converting the income from dividend expressed in US dollars. It was the case of the assessee that this rule dealt with both income accruing or arising or received in India as well as income deemed to accrue or arise or received in India. It was also argued that the tax is required to be imposed on real income and the real income is that over which the recipient has full dominion and control and which he can spend as he likes. The GIT (A) rejected this ground following the decision of the Special Bench of the Tribunal in the case of Allied Chemical Corpn. v. IAC [1983] 2 SOT 62 (Bom.). It is against this finding of the CIT (A) that the appellant has come in appeal in the first ground of appeal.
3. Shri Irani for the appellant pointed out that the view canvassed by the appellant was upheld in the appellant’s own case for the assessment years 1968-69, 1971-72, 1973-74, 1974-75 and 1975-76. He, however, in all fairness, pointed out that the Tribunal had held a contrary view in the appellant’s case in an appeal filed by the appellant for the immediately preceding year, i.e., for the assessment year 1979-80 where the Tribunal had followed the aforementioned decision of the Special Bench of the Tribunal in Allied Chemical Corpn.’s case (supra) and also in Allied Chemical Corpn. v. IAC [1983] 3 ITD 418 (Bom.) and confirmed the order of CIT (A). The issue for this year is the same. We would, therefore, following the finding of the Tribunal for the assessment year 1979-80 on this ground and in view of the decision of the Special Bench of the Tribunal in Allied Chemical Corpn.’s case (supra) decline to interfere with the order of CIT (A) and reject the first ground.
4. The second ground raises a more substantial point. In this regard certain facts may first be stated. The assessee’s previous year is the year ended 30-11-1979. Its main source of income is dividend received from its subsidiary company Pfizer (I) Ltd. The Board of Directors of this company declared second interim dividend for the year ended 30-11-1979 on 14-9-1979. The dividend warrants in this regard were issued on 24-10-1979. The amount of such interim dividend was Rs. 68,04,000. The ITO brought to tax such interim dividend in the assessment year 1980-81 on the basis that dividend had accrued during the relevant accounting year. Before the CIT (A), it was contended that the dividend was declared by the Board of Directors of Pfizer Ltd., on 14-9-1979 but remitted on 18-12-1979, i.e., after the previous year had ended on 30-11-1979. It was therefore submitted that under Section 8(6) of the IT Act, interim dividend is deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available to the shareholder. The CIT (A) pointed out that the Supreme Court in the case of J. Dalmia v. CIT [1964] 53 ITR 83 interpreted the words “unconditionally made available” to mean the year in which the dividend warrant is actually issued. The records indicated that the dividend warrant in this case is dated 24-10-1979 which date falls in the previous year. It was also found by the CIT (A) that permission of the Reserve Bank of India for remittance of such dividend was given on 21-11-1979 and therefore he held that the appellant’s submission that the appellant did not have a right to receive the dividend till the permission of the Reserve Bank of India for remittance was given also did not hold good. He further held that the condition laid down in Section 8(6) is fulfilled and the dividend of Rs. 68,04,000 declared on 14-9-1979 has rightly been included as the appellant’s income in this year (assessment year 1980-81).
5. Before us, Shri Irani reiterated more or less the same arguments as were taken before the CIT (A). He argued that under Section 8(6) of the Act, interim dividend shall be deemed to be income of the previous year in which the amount of such dividend is unconditionally made available to the member who is entitled to it. The aforesaid interim dividend of Rs. 68,04,000 was not remitted to the appellant in the previous year relevant to the assessment year under consideration and therefore it could not be said that the amount was unconditionally made available to the appellant in Panama in the previous year under consideration. Although Shri Irani agreed that the dividend was declared by the Board of Directors on 14-9-1979, dividend warrant was issued on 24-10-1979 and the Reserve Bank’s permission obtained on 21-11-1979, the actual remittance of the dividend to the appellant company in Panama took place on 18-12-1979 which, according to Shri Irani, was the date on which amount of the dividend was unconditionally made available to the appellant. Shri Irani relied on a decision of the Tribunal in the assessee’s own case for the assessment year 1979-80 in the immediately preceding year where the Tribunal, following another decision of the Tribunal in ITO v. Pfizer Corpn. [1985] 12 ITD 351 (Bom.) had decided this issue in favour of the assessee. Shri Vohra for the department, relying on the order of the CIT (A), argued that a non-resident cannot be taxed on a cash system of accounting. He must be taxed on a mercantile basis in respect of income which is either received by him or which accrues to him. Shri Vohra further argued that the moment the dividend warrants were issued, i.e., on 24-10-1979, the dividend could be said to have been made unconditionally available to the shareholder. Therefore, even within the meaning of Section 8(6), the interim dividend was made unconditionally available on a date which fell in the relevant previous year and therefore rightly taxed in that year. Alternatively and without prejudice, Shri Vohra argued that the dividend was allowed to be transmitted by the Reserve Bank of India in terms of its permission for remittance in foreign currency dated 21-11-1979 in terms of which the Reserve Bank allowed M/s. Pfizer Ltd., Bombay, to remit US dollars equivalent to Rs. 51,03,000 being the second interim dividend for the year ending 30-11-1979. He relied on Hanuman Prasad Gupta v. Hiralal AIR 1971 SC 206 in support of the proposition that the date of transmission should be treated as the date of receipt of income.
6. We have carefully considered the submissions made by the appellant’s counsel and by Shri Vohra for the revenue. Clause (b) of Section 8 reads as under:
8. For the purposes of inclusion in the total income of an assessee,-
(a) ** ** **
(b) any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.
The issue before us is whether the interim dividend of Rs. 68,04,000 declared by the Indian company was made unconditionally available to the assessee-company during the relevant year of account. Before dealing with the various cases having a bearing on the issue, certain relevant facts may be re-stated. The interim dividend was declared by the meeting of the Board on 14-9-1979 by the Indian company, namely, Pfizer Ltd. This company wrote a letter to the Reserve Bank of India on 20-9-1979 (page 11 of compilation filed by the assessee’s counsel) seeking the approval of the Reserve Bank of India to remit this dividend to Pfizer Corporation, Colon, Panama, in respect of the shares held by them. Pfizer Corporation, Colon, Panama, held 75,60,000 fully paid shares of Rs. 10 each in Pfizer Ltd. (Indian company). The details of the interim dividend which Pfizer Ltd. intended to remit as gathered from this letter are as under:
Rs.
Dividend at Re. 0.90 per share on 75,60,000 equity shares of Rs. 10 each 68,04,000 Less: Tax @ 25 per cent deductible 17,01,000 Net dividend remittable 51,03,000
It would thus appear that the company declaring the dividend intended to remit only the net dividend remittable amounting to Rs. 51,03,000 for which it sought permission from the Reserve Bank through its letter dated 28-9-1979. The interim dividend was declared on 24-10-1979. The permit for remittance of this amount was issued by the Exchange Control Deptt. of the Reserve Bank of India on 21-11-1979 (page 14 of the compilation). Once the dividend warrant was issued on 24-10-1979 in respect of this interim dividend, all the shareholders of the Indian company became entitled to receive such dividend. In the present case, the company declaring the dividend proceeded to request the Reserve Bank of India for the remittance of the net amount and obtained the permission for its remittance by 21-11-1979. In these circumstances, it could not be said that the directors at that stage had power to rescind the declaration when all facts indicated that the company was taking all the requisite steps well in time to obtain permission of the Bank and remit the net amount to its non-resident shareholders. Reference in this context may be made to a decision of the Supreme Court in the case of Hanuman Prasad Gupta (supra). In para 4 at page 208, the Supreme Court has observed as under:
4. A dividend once declared is a debt payable by the company to its registered shareholders. It is clear from Section 205 that although Under Sub-Section (3) no dividend shall be payable except in cash, Sub-Section (5) authorises a company to pay the dividend by a cheque or a warrant. Therefore, dividend can be said to have been paid either when it is paid in cash or when a cheque or a warrant is sent through the post directed to the registered address of the shareholder entitled to payment thereof. Indeed, Section 207 itself lays down that the offence thereunder is committed when dividend is either not paid or a cheque or a warrant in respect thereof has not been posted within the time prescribed therefor. Once, therefore, a dividend warrant is posted at the registered address of the shareholder, dividend is deemed to have been paid.
On a parity of reasoning, once the company had obtained permission for remittance of the dividend warrant to the shareholder, dividend could be said to have been made unconditionally available to the shareholder. Shri Irani argued that actual payment of the dividend was essential in respect of interim dividend. Shri Vohra has, in reply to this argument, brought to our notice a decision of the Madras High Court in CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573. The Madras High Court held that as far as non-resident is concerned, income has to be of necessity assessed on accrual basis. This was because no occasion for imposing tax on receipt outside India would arise in the case of a non-resident. Therefore, the argument that the interim dividend can be said to have become the income of the assessee only when the assessee received it cannot be accepted.
7. Shri Irani, no doubt, brought to our notice a decision of the Tribunal in the assessee’s case in Pfizer Corpn.’s case (supra) and in particular para 5 of that decision at page 355. We find that this decision mainly dealt with the treatment of dividend declared. Relying on the decision of the Supreme Court in J. Dalmia’s case (supra), the Tribunal held that as far as the interim dividend is concerned, the year of assessment would be the year in which the dividend was remitted. Firstly, we find on perusal of the order of the Tribunal that the decision of the Special Bench in Allied Chemical Corpn.’s case (supra) was not cited before that Bench. There, the Special Bench of the Tribunal in terms held that under Section 5(2) the total income of a non-resident assessee includes all such income that accrues or arises in India. The dividend income accrued or arose to the assessee on the date of declaration of interim dividend by the Indian company. The Special Bench also held as stated earlier in the order that
Rule115 had no application because the dividends were declared in Indian currency. As far as the Supreme Court decision is concerned, the date of meeting of the Board of Directors fell in one accounting year relevant to assessment year 1951-52 and the date of dividend warrant fell in the next accounting year relevant to assessment year 1952-53. On these facts, the Supreme Court held that the expression ‘paid’ in Section 16(2) (of the Indian Income-tax Act, 1922) did not contemplate actual receipt of the dividend by the member. In general, dividend could be said to be paid within the meaning of Section 16(2) when the company discharged its liability and made the amount of dividend unconditionally available to the member entitled thereto. Therefore, the Supreme Court held that on the facts before them the dividend had to be included in the assessment year 1952-53. In the case before us, the date of the meeting of the Board of Directors, the date of declaration of dividend by the company and the date when the company obtained the permit from the Reserve Bank to remit such dividend all fell in the accounting year ended 30-11-1979. The company by applying for and obtaining the permit for remittance of the dividend to its foreign shareholder had discharged its liability and made the amount of dividend unconditionally available to the shareholder who was entitled to it. That shareholder happens to be the appellant herein. The fact that actual remittance of the dividend was made in December 1979 is not material or relevant in the light of all the other facts which have been narrated hereinabove. We would, therefore, hold that the CIT (A) was justified in confirming the inclusion of the dividend income of Rs. 68,04,000 in the assessment year under appeal.
8. Before parting with this appeal, we must take note of the alternative argument taken by Shri Irani without prejudice to all the other arguments advanced by him, namely that direction should be given for allowing credit for tax deducted at source in the event of our holding that the amount of interim dividend becomes taxable in the assessment year 1980-81. In fairness, we would have to accept this argument and direct that the amount of tax deducted at source should be allowed as a credit while giving effect to our order. We would direct that credit should be given for the amount of tax deducted at source while computing the total income of the appellant company while giving effect to our order. Subject to these directions, the appeal will be treated as dismissed.