C.A.P. Andiappan Vs. C.I.T. Madras
& ANR  INSC 182 (9 August 1971)
Income-tax Act (11 of 1922). s. 49A-Agreement
between India and Ceylon, Art 3, item 8-Scope of-Relief under Ceylon Income-tax Ordinance 1932 s. 45(2)-Abatement to which an assessee resident in India and carrying on business in Ceylon is entitled to.
The appellant was a resident in India and was carrying on business in Ceylon. His entire assessable income for the years
1959-60 and 1960-61 was what he earned in Ceylon. He was liable to be assessed
:as a non-resident, but, in view of s. 45(2) of the Ceylon Income-tax
Ordinance, 1932, and of the Agreement for 'Assessment for Relief or for
Avoidance of Double Taxation in India and Ceylon' as provided in s. 49A of the
Indian Income tax Act, 1922, he was taxed as if he was a resident in Ceylon and
assessed to pay a smaller sum as tax. The Income-tax authorities in India computed the tax under the Indian law :and gave as abatement, the tax payable by him
in Ceylon as per the Agreement, and called upon him to pay the balance.
On the questions: (1) whether he was not
liable to be taxed at all in India, and (2) if he was liable to be taxed in
India, what should have been the proper abatement, the High Court confirmed the
order of the Income-tax authorities.
In appeal to this Court,
HELD: (1) Article 3 of the Agreement begins
with the words 'Each ,country shall make an assessment in the ordinary way
under its own laws.' Therefore, the appellant was liable to be taxed in India.
[91E-F] (2) The Article read with item 8 of the Schedule to the Agreement shows
that from out of the amount ascertained under the first part of the Article the
tax payable by the assessee in the other country in respect of the whole or
part of the amount brought to tax under the first part of the Article, should
be deducted. The word 'attributable' in the Article means 'payable'. In
considering what taxes are attributable to the tax laws of a particular
country, one has to take into consideration all the provisions of the statutes
levying tax, that is, for determining the tax ,due from an assessee, one has
not merely to look to the charging section, but also to the provisions
providing exemptions and allowances. So read, the amount of tax attributable to
the Ceylonese law is that which ,was ultimately actually levied on the assessee
and not the leviable in Ceylon on a nonresident. [92B-G] Ramesh B. Saraiya v.
C.I.T. Bombay 55 I.T.R. 699 (S.C.) applied.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1689 and 1690 of 1968.
Appeals from the judgment and order dated
January 19, 1967 of the Madras High Court in Writ Petitions Nos. 1030 and 1031
T A. Ramachandran, for the appellant (in both
S. C. Manchanda, R. N. Sachthey, B. D. Sharma
and S. P.
Nayar, for the respondents (in both the
The Judgment of the Court was delivered by
Hegde, J. These appeals by certificate arise from the decision of the High
Court of Madras in Writ Petitions Nos.
1030 and 1031 of 1963. Therein the petitioner
Invoked the extraordinary jurisdiction of the High Court under Article 226 of
the Constitution to quash the orders of the Respondents wherein he was not
granted the abatement he sought to obtain in the assessment years 1959-60 and
1960-61 The High Court came to the conclusion hat the appellant is not entitled
to any in ore abatement than that was given by the authorities under the
'Assessment for Relief or for Avoidance of double Taxation in India and Ceylon'
which will be hereinafter referred to S the "agreement". It
accordingly dismissed the Writ Petitions but gave a certificate under article
133(1)(c) of the Constitution of India certifying that this is a fit case )r
appeal to this Court.
The appellant is a resident in this country.
But he carrying on business in Ceylon. During the assessment car 1959-60 he
earned a gross income of Rs. 39,473/-id in the assessment year 1'960-61 he
earned a gross income of Rs. 39,047/-. He had only a house in India hose annual
rental value was Rs. 38,/-. The entire assessable income of his was that what
he earned in Ceylon. in his income in Ceylon, he was taxed in a sum of Rs. 919/for
the assessment year 1959-60 and in a sum of s. 6,036/for the assessment year
1960-61. For the ,.me income, in India, under the Indian Jaw his tax was
computed for the assessment year 1959-60 at Rs. 10,282-62P id for the
assessment year 1960-61 at Rs. 9,521 -35P 90 The tax payable by him in Ceylon
was given as abatement and he was called upon to pay only the balance. The tax
payable by him in Ceylon as a non-resident would have been Rs. 9,889/in the
assessment year 1959-60 and Rs. 9,983/in the assessment year 1960-61. But in
view of section 45(2) of the Ceylon Income Tax ordinance 1932 and also in view
of the 'Agreement' he was taxed as if he was a resident in Ceylon.
Two questions arising for decision are
whether he was not liable to be taxed at all in India and if he was liable to
be taxed in India, what should have been the proper abatement given to him.
Mr. Ramachandran appearing for the assessee
contended firstly that in view of the 'Agreement' entered into between India
and Ceylon as provided in section 49C of the Indian Income Tax Act, 1922 he was
not liable to be taxed in India at all. In the alternative, he contended' that
while determining the tax payable by him in this country, the department should
have deducted the entire tax that he would have had to pay had been taxed as a
non-resident. For this contention also he relies on the terms of the agreement
entered into between India and Ceylon. He does not dispute the fact but for the
agreement the assessee would have been liable to pay in this country a tax of
Rs. 10,282 -62 p. in the assessment year 1959-60 and Rs. 9,521 -35p. in the
assessment year 1960-61.
In order to consider the correctness of the
contention,, advanced by Mr. Ramachandran, we will now turn to the relevant
provisions of the 'Agreement'. That 'Agreement' was notified in Modification
SRO 456 dt. the 6th February, 1957. The portion of the notification which is
relevant for our present purposes is contained in Article 3 and column 8 of the
Schedule to that agreement. Article 3 reads "Each country shall make
assessment in the ordinary way under its own laws; and where either country
under the operation of its laws charges any income from the sources or
categories of transactions specified in column 1 of the Schedule to this
Agreement (hereinafter referred to as the Schedule) in 91 excess of the amount
calculated according to the percentages specified in column II and III thereof,
that country shall allow an abatement equal to the lower of the amounts of tax
attributable to such excess in either country." SCHEDULE Sources of income
or nature of Percentage of income Remarks transaction from which income is
which each country derived is entitled to charge under the Agreement.
I II III IV
8. Any income derived from a source 100 per
cent Nil by ,or category of transactions not menby the country the other.
tioned in any of the foregoing items in which
of the Schedule. the income actually accrues or arises.
The first portion of article 3 says that
"each country shall make an assessment in the ordinary way under its own
laws." This means to begin with both India and Ceylon were required to
assess the assessee in accordance with law prevailing in each of these
countries. Thus far it is plain. From this it is clear that first contention
advanced on behalf of the assessee has no basis. Hence it must fail. Now we
come to the second part of that article to the extent necessary for determining
the second contention. It reads :
" and where either country under the
operation of its laws charges any income from the sources or categories of
transactions specified in column 1 of the schedule to this Agreement .... in
excess of the amount calculated according to the percentages specified in
columns 11 and III thereof, that country shall allow an abatement equal to the
lower of the amounts of tax attributable to such excess in either
country." The language employed in this part of the article 'is quite
confusing. That part of the article has to be read with the 92 schedule. On a
proper reading of that provision alongwith the schedule, which means in the
present case, item 8 of the schedule, it appears to us that what it says is
From out of the amount ascertained under the first part of the Article deduct
the tax payable by the assessee in the other country in respect of the whole or
any portion of the amount brought to tax under the first part of article. The
word 'attributable' in that Article merely means 'payable Applying the
principle mentioned above to the facts of the present case, the following
result is reached. The tax payable under the Indian law as seen earlier was Rs.
10,282.62p. in the assessment year 1959-60. The tax payable under the Ceylonese
law in that year was Rs. 5,919/-. That has to be deducted from the tax computed
under the Indian law. The balance alone is leviable. Similarly in the
assessment year 1960-61 the tax computed under the Indian law is Rs. 9,521-35
p. and the tax levied under the Ceylonese is being Rs. 6,036/-. In levying tax
in this country the tax payable in Ceylon has to be deducted. It was urged by
Mr. Ramchandran that what we have to take into consideration is not the actual
tax levied in Ceylon but the tax leviable in Ceylon on a non-resident. He says
that the deduction given under section 45 (2) of the Ordinance promulgated in
Ceylon is only an allowance. Hence the same does not form part of the actual
taxation. We are unable to accede to that contention. In considering what taxes
are attributable to the tax laws of a particular country, one has to take into
consideration all the provisions of the statutes levying tax. In other words
for determining the tax due from an assessee, we have not merely to look to the
charging section but also to the provisions providing exemptions and
'allowances. If so read, it is quite clear that the amount of tax attributable
to the Ceylonese law is that which was ultimately levied on the assessee.
The agreement that was entered into between
India and Pakistan is similar in terms with the agreement, with which we are
concerned in these appeals, except that in article 4 therein which corresponds
to article 3 in the agreement before us in the place of the word 'attributable'
the word 'payable' is used. But this change does not make any difference in
substance. Interpreting that 93 agreement this Court in, Ramesh R. Saraiva v.
Commissioner of India Tax, Bombay City-11 held that article IV of the
Indo-Pakistan Agreement for the avoidance of Double Taxation clearly shows that
each Dominion can make an assessment in the ordinary way regardless of the
Agreement. The restriction which is imposed on each Dominion under the
Agreement is not on the power of assessment but on the liberty to retain the
tax assessed. Nor does the Schedule to the Agreement limit the power of each
Dominion to assess, in the normal way all the income that is liable to taxation
under its laws. The Schedule has been appended only for the purpose of
calculating the abatement to be allowed by each Dominion. The ratio of this
decision, in our opinion, governs the facts of this case.
We also do not see any reason for treating
the appellant in a manner different from other assessees, who are resident in
In the result these appeals fail and the same
V.P.S. Appeals dismissed.
(1) 55 I.T.R. 699.