K. Vs. A. L. M. Ramanathan Chettiar by
L.R.S. Vs. Commissioner of Income-Tax, Madras [1972] INSC 254 (11 October 1972)
REDDY, P. JAGANMOHAN REDDY, P. JAGANMOHAN
HEGDE, K.S.
KHANNA, HANS RAJ DUA, I.D.
CITATION: 1973 AIR 2172 1973 SCR (2) 650 1973
SCC (3) 351
CITATOR INFO:
RF 1975 SC2016 (28) R 1980 SC 252 (9)
ACT:
Income Tax Act (11 of 1922), s.49-D--Scope
of.
HEADNOTE:
The assessee was carrying on business in
Malaya and was owning rubber plantations. He was also carrying on business in
'India. In respect of the assessment year 1953-54 he declared his foreign
income from Malaya at Rs. 2,22,532, income in India at Rs. 39,142 from sources
other than business and a loss on business in India at Rs. 68,658. The
Income-tax Officer allowed double taxation relief on a sum of Rs. 1,92,816/by
adding the income in India to the foreign income and deducting there from the
loss in India.
The Commissioner, in exercise.. of his powers
under s.48 read with s.49-D of the Income-tax Act, 1922, however, set off the
business loss in India against the business profits in Malaya and held that
only the resulting income of Rs.
1,53,674 from Malaya could be considered to
have suffered double taxation and hence granted double taxation relief in
respect only of that amount. The Tribunal followed the decision of the Madras
High Court in C.I.T. Madras v.
Arunachalam Chettiar, 49 I.T.R. 574, and
confirmed the order of the Commissioner. The High Court also on reference, was
of the view that the relief granted by s.49-D 'on such doubly taxed income' has
reference to the factual double incidence under two different jurisdictions of
tax on identical amounts of income, and decided against the assessee.
In appeal to this Court, on the scope of the
expression 'such doubly taxed income' in s.49-D of the Act, with respect to
which double taxation relief is given, HELD: (Per P. Jaganmohan Reddy, H. R.
Khanna and I. D. Dua, JJ.) The High Court was in error.
By the year 1950, the Government of India was
encouraging More and more Indian citizens to establish branches in countries
with which there was no special agreement for the avoidance of double taxation,
and s.49-D was substituted in place of the old one, in 1953, for the purpose of
giving double taxation relief in respect of taxes on income charged in any
country, by deduction or otherwise, under the law in force in that country. The
object of the section is that the amount of Indian income tax paid or the
amount of tax in the foreign country, whichever is lower, is allowed as a
deduction from the tax payable under the Act on such doubly taxed income. Prior
to 1953, the section afforded relief at half the Indian income tax or half the
tax paid in the other country, in respect of the same income whichever is less.
if the concession that was being given by the new section for encouraging
Indian citizens to start business in foreign countries was only to give relief
at the full rate of Indian income-tax instead of half such tax, all that was
necessary by the amendment was to delete the words "one half" occurring
in the section prior to its amendment. But the Legislature bad redrafted the
entire section with the result that the phrase such doubtly taxed income' in
the new section and the phrase 'same income' in the repealed section do not
have the same import. The words 'same income' in the context would mean the
same kind or species or identical income earned in a foreign country 651 on
which tax has been paid in that country, in respect of which relief is being
claimed from being again subjected to tax under the Act. But the words 'such
doubly taxed income' have reference to the foreign income which bears once
again the burden of Indian income-tax by its being included the total income
chargeable under s.3 read with s.2(15) of the Act. Under s.4(1)(b)(ii) the
income which accrues to an assessee outside the taxable territories is to be
included in the total income so that the income under any of the heads
enumerated in s.6 which has accrued or arisen to the assessee outside the
taxable territory and is subject to the tax under the law in force in that
country, is included in his total income attracting the levy of charge under
the Indian Income Tax Act, and is therefore doubly taxed. [667CD; 672G-H;
673C-E 674B-F, G-H; 675A-B] Once it is recognized that s.49-D does not make the
basis of relief the tax paid on the income from the same head or source, then
the relief to which ,in assessee would be entitled would be the amount of tax
on the foreign income which by its inclusion in the total income once again bears
under the Act. The word 'such' in the phrase 'such doubly taxed income' has
reference to the foreign income which is being subjected to tax by its
inclusion in the computation of income under the Act and not the same income'
under an identical head of income under the Act. The income from each head
under s. 6 is not, under the Act, subjected to tax separately; but it is the
total income which is computed and assessed as such in respect of which relief
is given for the inclusion of the foreign income, on which tax has been paid
according to law in force in that country. The scheme of the Act is that
although income is classified under different heads and the income under each
head is separately computed in accordance with the provisions dealing with that
particular bead of income, the income which is the subject matter of tax under
the Act is one income which is the total income. Income-tax is only one tax
levied on the aggregate of the income classified and chargeable under the
different heads and not a collection of distinct taxes levied separately on
each head of income. There is nothing 'in the language of s.49-D which, either
expressly or by necessary implication, restricts the grant of double taxation
relief to incomes under the same head. [675F-H; 676A-D] Rolls Royce Ltd. v.,
Short, 10 T.C. 59, Assam Railway and Trading Co. Ltd. v. The Commissioner of
In-land Revenue, 18 T.C. 509, O.A.P. Andippan v. Commissioner of Income-tax,
Madras, 82 I.T.R. 876 and Inland Revenue Commissioners v. National Mortgage and
Agency Co., of New Zealand, [1935] A.C. 524, distinguished and explained.
C.I.T., Madras v. Arunachalam Chettiar, 499
I.T.R. 574, disapproved.
(Per Hegde J. dissenting) : The construction
of the section given by the Commissioner, Tribunal and the High Court is the
proper construction. [653G] Under our income-tax law in every assessment year,
the total income of an assessee during the previous year is brought to tax. It
is made up of income from various sources set out in s.4. The section attracts
into the pool income, profits and gains from whatever sources derived, which
are received or deemed to be received in the taxable territory in the previous
year by the assessee; and one of the components is the income that has accrued
or arisen to him in the previous year, outside the taxable territory. In
computing the total income of the assessee the procedure adopted is that income
under each head is first determined after giving deductions to which the
argessee is entitled under that head, and thereafter, the total income is
arrived at for the purpose of detecting the 652 rate of tax as well as for the
quantification of tax due.
Section 4 requires that there should be a
recalculation of the incomewhich has be doubly taxed. in making that
calculation, the authority computing tax will have to leave those portions of
the income which have not be doubly taxed.
[654D F; 656A C] The ingredients of s.49-D,
which gives double taxation relief, are:
(i)the assessee must have been resident in
the taxable territory the year;
(ii)that some income must have accrued or
arisen to him outside the taxable territory during that year;
(iii)in respect of that income he must have
paid, by deduction or otherwise, tax under the law 'in force in the country in
question; and (iv)if he fulfills all the above Conditions he will be entitled
to deduction from the Indian income-tax payable by him of a sum calculated of
such doubly taxed income at the Indian rate of tax or the rate of tax of the
said country, whichever is lower. [655C-F] The expression "such doubly
taxed income" involves two aspects: (a) it exclusively relates to the
income earned outside India, and (b)it relates only to that part of the income
earned outside India which is doubly taxed; that is, the same income must have
been doubly taxed. The income that gets relief under s.49-D, is only that
inclomidentified income-which has been 'subjected to tax not only in the
country in which it was earned, but also in this country. The section does not
concern itself with the totality of the income or even with the source of
income, but, concerns itself with that part of the income which has been
subjected to double taxation. [655F-H] If the entire tax paid by the assessee
in a country outside India is to be deducted while computing his tax liability
in this country, then there is no necessity 'for the Legislature to enact s.
49-A. It is not reasonable to think that s.49-D gives more relief than that is
likely to be given under an agreement under s.49-A. Anything more than that,
cannot be considered as relief from double taxation, but would amount to tax
concession. If the relief given under an agreement under s.49-A and the relief
given under s.49-D mean the same thing, tin Legislature must be held to have
indulged in an exercise of futility. Section 49-D, being a residuary provision,
must be understood to cover a field other than that covered by s.49-A. Under
the section, as it stood before the amendment in 1953, relief was given in
respect of the same income which was taxed twice over.
After amendment, relief is given on such
doubly taxed income The two expressions 'the same income' and 'such doubly
taxed income' mean the same thing. [656 G-H; 657 A.0. E.G.] Despite the
difference in language the section is similar in scope to s.27 of the United
Kingdom Finance Act, 1920, and the decisions rendered under the U.K. Act have a
bearing on the point in controversy. [657G; 658C-D] In the present case, the
assessee's income from property and other sources amounting to a sum of Rs.
39,142 has not been doubly taxed. Hence that income cannot enter into the
calculation of the doubly taxed income of the assessee and that income could
not have been included in the return made by the assessee in Malaya. That being
in calculating the doubly taxed income, that component of the total income has
to be 653 kept apart. Further, the entire business income earned in Malaya
though taxed in Malaya has not been taxed in this country. Out of that sum only
a sum of Rs. 1,53,674 has been taxed in this country. The business loss in this
country cannot be said to have been taxed in this country.
A relief does not amount to a taxation.
Double taxation relief should not be mixed up with tax concessions. It is only
that income which can be said to have been doubly taxed, that is entitled
to-relief under the section. [656 SG] Rolls Royce Ltd. v. Short, 10 Tax Cas. 59
and The Assam Railways and Trading Co. Ltd. v. The Commissioners of Inland
Revenue, 18 Tax Cas. 509, applied.
Commissioner of Income-tax v. Arunachalam
Chettiar, 49 I.T.R. 574, approved.
Commissioner of Income-tax, Bombay City-II v.
New Citizen Bank of India Ltd. and Anr., 58 I.T.R. 468. referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 1840 and 1842 of 1972.
Appeal by certificate from the judgment and
order dated March 12, 1968 of the Madras High Court in Tax Case No. 202 of 1962
(Reference No. 5 of 1964).
S. T. Desai and T. A. Ramachandran, for the
appellant.
B. Sen, P. L. Juneja, B. D. Sharma and R. N.
Sachthey, for the respondents.
M. S. K. Sastri and M. S. Narasimhan, for the
intervener.
The majority opinion of P. Jaganmohan Reddy,
I. D. Dua and H. R. Khanna, JJ. was delivered by P. Jaganmohan Reddy, J.
K. S. Hegde, J. gave a dissenting opinion.
HEGDE, J. I have had the advantage of reading
the judgment prepared by my learned brother Reddy J. I regret I am unable to
agree with the construction placed by him on S. 49-D of the Indian Income-tax
Act 1922 (to be hereinafter referred to as the Act). I agree with him that
there is considerable difficulty in interpreting that provision but that does
not absolve this Court from its duty of properly construing that provision. On
a proper construction of that provision, I am of the opinion that the
conclusion reached by the Commissioner, the Tribunal and the High Court is the
proper one.
The facts of the case are fully set out in
the judgment of my learned brother Reddy J. It is needless to repeat those
facts in their entirety. It will be sufficient if set out the material facts
relating to the assessment year 1953-54.
During the relevant previous year, the
deceased assesses who carried on business in Malaya and also owned rubber
gardens abroad declared his foreign income as 654 Rs. 222,532. He had been
assessed in Malaya in respect of that income. As he was resident in India
during the relevant previous year, that income must be considered as having
accrued to hi-in in India in view of s. 4(1)(b)(ii) of the Act. During the
relevant year, he was carrying on business in India also. In that business he
suffered a loss of Rs. 68,858. In this country his income from other sources
amounted to Rs. 39,142. It mainly consisted of income from property. In his
assessment proceedings in this country, he claimed double taxation relief under
s. 49-D.
The Income-tax Officer added his income
arising outside that taxable territories with his income from other sources in
India (Rs. 2,22,532+Rs. 39,142=Rs. 2,61,674 and from that he deducted Rs.
68,658, the business loss suffered by him in India and taxed him on a total
income of Rs. 1,92,816. The Commissioner revised that order. He came to the
conclusion that the income that has suffered double taxation was only Rs.
153,674. He accordingly granted double taxation relief only in respect of that
amount. His view was confirmed by the Tribunal in appeal and by the High Court
in a Reference under s. 66(1).
Under our Income-tax law, in every assessment
year, the total income of an assessee during the previous year is brought to
tax. It is made up of income from various sources. Those sources are set out in
s. 4 of the Act.
Clause (a) of sub-s. (1) of s. 4 attracts
into the pool, income, profits and gains from whatever sources derived which
are received or deemed to be received in the, taxable territory in the previous
year by or on behalf of the assessee. income is defined in s. 2(C). That is an
inclusive definition. One of the components of 'income' is 'dividend' which is
defined in s. 2 (6)(A). Both the expressions 'income' as well as 'dividend'
include certain receipts which are deemed as 'income' or 'dividend'. Section
4(1)(b) enumerates various other sources of income.
One of the components which makes up the
total income is the income that has accrued or arisen to a resident in India in
the previous year, outside the taxable territory.
We shall now see what s. 49-D says. It is not
necessary to quote the entire section. The portion of the section that is
material for our present purpose runs thus :
"If any person who is resident in the
taxable territories in any year proves that, in respect of his income which
accrued or arises during that year without the taxable territories he has paid
in any country by deduction or otherwise under the law in force in that
country, he shall be entitled to the deduction from the Indian income-tax
payable by him of a sum calculated on such doubly taxed income at the Indian
rate of tax or the rate of tax of the said country, whichever is the
lower." (emphasis supplied) Before analyzing the ingredients of this
provision, it is necessary to mention that s. 49-D gives relief to the extent
mentioned in that 'section in respect of the income accruing or arising in
countries outside India with which our country has no reciprocal agreement for
relief or avoidance of double taxation. With the countries with which we have
reciprocal agreements for the relief from double taxation, s. 49-A applies. In
cases falling under that section, relief to be granted depends upon the terms
of the concerned agreement. Now turning back to s. 49-D and an sing that
provision, we find the following ingredients:(1) The assessee in question must
have been resident in the taxable territory in any year;
(2) That the some income must have accrued or
arisen to him outside the taxable territory during that year;
(3) In respect of that income he must have
paid by deduction or otherwise tax under the law in force in the country in
question and (4) If he fulfills all the above conditions, he will be entitled
to deduction from the Indian income-tax payable by him of a sum calculated on
such doubly taxed income at the Indian rate of tax or the rate of tax of the
said country whichever is lower.
There is no dispute that the first three
conditions enumerated above have been satisfied in the present case.
The real question for decision is as to what
is the scope of the expression "of a sum calculated on such doubly taxed
income". This expression involves two aspects viz. (1) It exclusively
relates to the income earned outside India.
This is clear from the word "such"'
and (2) It relates only to that part of the income earned outside India which
is doubly taxed. In other words the same income must have been doubly taxed.
The income that gets relief under s. 49-D is Only that income--identified
income which has been subjected to tax twice over. In other words the income in
question may be whole or part-must have been subjected to tax not only in the
country in which it was earned but also in this country. From the language of
s. 49-D, it is clear that it does not concern itself with the totality of the
income or even the source of the income. it merely concerns itself with that
part of the income which has been subjected to double taxation.
7-L499Sup. C. I. /73 656 The provision
requires that there should be a recalculation of that income which has been
doubly taxed. In making that calculation, the authority computing the tax will
have to leave those portions of income which have not been doubly taxed.
In computing the total income of an assessee,
the procedure adopted is that income, profits or gains under each head is first
determined after giving deductions to which the assessee is entitled under that
head and thereafter the total income is arrived at for the purpose of
determining the rate of tax as well as for the quantification of the tax due.
Supposing an assessee, has various sources of income such as salaries, interest
on securities, income from property, profits or gains of business, profession
or vocation, income from other sources and capital gains, the income under each
head has to be first determined. For the determination of the taxable income
under each head, the taxing authorities have not only to take into
consideration the gross income under each head, they must go further and deduct
from the gross income under each head various concessions to which the assessee
is entitled to and thereafter arrive at the total income.
Quite clearly the assessee's income from
property and other sources amounting to a sum of Rs. 39,142/has not been doubly
taxed. Hence that income cannot enter into the calculation of doubly taxed
income of the assessee as that income could not have been included in the
return made by the assessee at Malaya. That is not an income earned by the
assessee outside the territories of India. That being so in calculating the doubly
taxed income, that component of the total income has to be kept apart. Further
the entire business income of Rs. 2,22,532/earned in Malaya though taxed in
Malaya, has not been taxed in this country. Out of that sum only a sum of Rs.
1,53,674/has been taxed in this country. The business loss in this country
cannot be said to have, been taxed in this country. A relief given does not
amount to a taxation. To repeat, it is only that income which can be said to
have been doubly taxed, is entitled to relief under s. 49-D. Counsel for the
parties rightly conceded that the source of income is not a relevant
consideration. What is material under s. 49-D is the income which is doubly
taxed.
If the entire tax paid by the assessee in a
country outside India is to be deducted while computing his tax liability in
this country, then there was no necessity for the Legislature to enact s. 49-A.
An agreement under that provision, at the highest could have provided for the
deduction from the tax payable in this country by an assessee, the tax paid by
him in a foreign country.
Anything more than that cannot be considered
as relief from double taxation. It would amount to tax concession-. It is
equally unlikely that the relief given under an agreement entered into under s.
49-A 657 can be less than the relief available under s. 49-D. If the relief
given under an agreement under s. 49-A and the relief given under s. 49-D mean
the same thing, the Legislature must be held to have indulged in an exercise in
futility.
Such a line of reasoning is impermissible.
Section 49-D must be understood to cover a field other than that covered by s.
49-A. Further it is not reasonable to think that s.
49-D gives more relief than that is likely to
be given under an agreement under s. 49-A, s. 49-D being a residuary provision.
Section 49-D as it now stands is the result
of an amendment made in 1953. Prior to that the section read :
"If any person who has paid by deduction
or otherwise Indian Income-tax for any year in respect of any income arising
without the taxable territories in a country the laws of which do not provide
for any relief in respect of income-tax charged in the taxable territories
proves that he has paid income-tax by deduction or otherwise under the laws of
the said country in respect of the same income, he shall be entitled to the
deduction from the Indian Income-tax payable of a sum equal to one half of such
Indian Income-tax or to one half of such tax payable in the said country,
whichever is less." Under the section as it stood before the amendment in
1953 relief was given "in respect of the same income" which was taxed
twice over. Under the present provision relief is given to "such doubly
taxed income". I am clear in my mind that so far as the identification of
the income which is entitled to double taxation relief is concerned, there has
been no change in the law. The expression "the same income" and
"such doubly taxed income' mean the same thing. We are not concerned with
the other changes effected in s. 49-D.The statement of objects and reasons for
bringing about the change in s. 49-D or the Select Committee's report relating
to that provision do not throw any light in the matter of identification of the
income which-is entitled to double taxation relief.
Section 49-D despite the difference in the
language employed in my opinion is similar in scope to s. 27 of the United
Kingdom Finance Act, 1920. The relevant portion of that section reads as
follows :
"If any person who has paid, by
deduction or otherwise, or is liable to pay, United Kingdom income tax for any
year of assessment on any part of his income Proves to the satisfaction of the
Special Commissioners that 'he has paid Dominion income-tax for that year in
658 respect of the same part of his income, he shall be entitled to relief from
United Kingdom income tax paid or payable by him on that part of his income at
a rate thereon to be determined as follows :
(a) If the Dominion rate of tax does not
exceed one half of the appropriate rate of United Kingdom tax, the rate at
which relief is to be given shall be the Dominion rate of tax;
(b) In any other case the rate at which
relief is to be given shall be one-half of the appropriate rate of United
Kingdom tax." The English provision entitles an assessee to relief from
double taxation in respect of that part of his income on which he has paid
dominion income-tax and he is also liable to pay income tax in United Kingdom
in respect of that part.
The income which is entitled to relief under,
that provision is "the same part of his income" which is liable to be
taxed both in the United Kingdom as well as in the Dominion. That is exactly
what is done under s. 49-D. Our Act instead of using the expression "the
same part of his income" which is doubly taxed has used the expression
"of such doubly taxed income". But the two expressions mean the same
thing.
The decisions rendered under the United
Kingdom Act bear on the point in controversy in this case.
In Rolls Royce Ltd. v. Short(1), question
arose as to what extent the assessee was entitled to relief from double
taxation under the aforementioned s. 27. The facts of the case are not material
for our present purpose. But that decision sets out the scope of s. 27. This is
how its scope is described by Rowlatt J. sitting on the King's Bench.
"The object of Section 27 of the Finance
Act, 1920 was to mitigate the hardship involved in paying Income Tax in the
United Kingdom in full upon profits which has already been subjected;
to Income Tax in a Dominion, and if the
Legislature had thought fit to say that wherever income had been taxed in a
Dominion and the same profits came thereafter at any time to form the basis of
a tax in the United Kingdom the sum already paid on that income should form a
basis of relief, the thing might have worked out very simply. But that has not
been done obviously because it is quite clear that before relief can be given
in respect of Dominion Income Tax paid on profits brought into charge to
Income-tax in this country, it must be shown that the (1) 10 Tax Cas 59.
659 Dominion Income-tax and the United
Kingdom Income Tax are paid in respect of the same year and on the same income
or as the phrase is used here, "part of income".
The learned judge equated the expressions
"part of income" and "same income" as meaning the same
thing.
In the course of his judgment, his Lordship
observed "If you read the first few lines of the section, really on the
words of it, the section only appears to apply where this overlapping of
taxation has been partial, that is to say, where a man has part of his income
taxed doubly and not where he has the whole taxed doubly, which obviously
cannot be intended." When the matter was taken up in appeal to the Court
of Appeal Pollock M. R. set put the conditions on which the relief can be given
under s. 27. Those conditions, to put it in the words of the Master of Rolls
are:
"First, it is the person who has paid
the United Kingdom Income Tax by deduction or otherwise for any year of
assessment on any part of his income who may claim relief. The second step is
that that tax payer must prove to tie satisfaction of the Special Commissioners
that he has paid Dominion Income Tax for that year of assessment "in
respect of the same part of his income" as that on which he has paid
United Kingdom Income Tax. And the third step is that if such proof is given,
the tax-payer becomes entitled to relief from United Kingdom Income Tax
"on that part of his income", that is, on that same part referred to
previously on which he has paid United Kingdom Income Tax and Indian Tax."
Proceeding further the Master of Rolls observed "The fact of paying a tax
in a Dominion does not induce relief. The basic condition is that a person has
paid tax on his income over here-then, if some part of that income so charged and
assessed to tax in the United Kingdom can be identified and proved to have paid
Dominion tax, that same part which has suffered dual taxation can be relieved
of the tax paid here up to the measure of relief given by the Section."
The decision which is more appropriate for our present purpose is that rendered
in The Assam Railways and Trading Co.
Ltd. v. The Commissioners of Land Revenue (1.
The relevant facts of that case are as follows:
(1) 18 Tax cas 509.
660 The assessee company, which was
incorporated and controlled in the United Kingdom, carried On the business of
running a railway, working coal mines, brick words etc., in Assam and also
carried on a plantation business there. The, whole of its income arose in India
with the exception of a small amount arising from investments in England. The
company had issued, in the United Kingdom, debenture stock and the interest
thereon was paid in the United Kingdom. In computing the company's liability to
United Kingdom income tax Case 1 of Schedule D for the years 1928-29 and
1929-30, the debenture interest was not allowed as a deduction and certain
profits from a tea garden were included as a receipt. The assessments on the
company to Indian income tax and super-tax for the corresponding years in
respect of its business profits were, in accordance, with the provisions of
Indian Income-tax law, arrived at after deducting the amount of debenture
interest and excluding the tea garden profits.
The assessee claimed that the relief in
respect of Dominion income-tax to, which it was entitled under Section 27,
Finance Act, 1920 should be based on the whole of its income as computed for
the purpose of United Kingdom Income Tax less only the income arising in
England, without any deduction for the debenture interest or the tea garden
profits. The Special Commissioners refused the relief claimed. The House of
Lords affirmed the decision of the Special Commissioners. It held that the
company had not borne double taxation on that part of its income which was
applied in payment of debenture interest or on the tea garden profits and hence
was not entitled to relief in respect thereof. From this decision, it is seen
that the total income of the assessee arising or accruing in United Kingdom for
the purpose of double taxation relief was split into four parts i.e. (1) income
arising in England (2) the interest on debenture that was given deduction to in
India (3) the tea garden profits and (4) the other income.
There was no dispute that the income from the
investments in England was not to be taken into consideration while deter-mining
the double taxation relief. This position was conceded by the assessee. If we
apply the same, ratio to the facts of the case before us, we have to exclude
from consideration while determining the double taxation relief, the income of
Rs. 39,142/an income exclusively earned in India and was not brought to tax in
Malaya. Next, deduction given in India in respect of the interest on debenture
loans was not taken into consideration while affording double taxation relief
because that portion of the Indian income was not subjected to double taxation
because of the relief given under the Indian Income-tax Act. Let us apply that
principle to the facts of the present case. The amount deducted in this country
as business loss (Rs. 68,858/-) was not subjected to double taxation. That
amount was never taxed in this country.
661 We should not mix up double taxation
relief with tax concessions. The main judgment of the, House of Lords in Assam
Railways, case (supra) was delivered by Lord Wright.
Analyzing s. 27 of the Finance Act, 1920,
Lord Wright observed "The Section requires that the taxpayer should prove
(1) that he has paid tax in the United Kingdom for any year on a certain sum
which is part of his income; in this connection, I do not think that the word
"part" is used to exclude the whole but merely to point to an
ascertainable sum of income which is brought into question; (2) that he has
paid tax in the Dominion "in respect of" the same part of his income
for that year : here the words "in respect of as contrasted with
"on" do not, I think, involve any latent distinction, since the word
on" would be inapplicable to the "same income" which becomes a
separate taxable subject in the Dominion. The taxpayer then becomes entitled to
relief. It seems clear that there must be a definite part of income brought
into question, and that can only be expressed in a sum of money. As income ex
vi termini must be expressed in a sum of money, the words "the same part
of his income" must involve a comparison between two sums of money which
prove to be the same. The contention of the appellants is to the contrary : it
is said on their behalf that the words "the same part 'of his income"
refer solely to what is called the source, and that identity of amount is
immaterial and does not come into question except for the purpose of
ascertaining the rate of tax to be allowed for. I cannot agree with this
argument. No doubt questions of source, as it has been called, that is, such
questions as where the income comes from, are essential to identify so far as
that aspect goes, what is taxed in the United Kingdom with what is taxed in the
Dominion, but, in addition, the income itself that is, the amount of money,
must also be identified. I think the words "the same part of his
income" are apt to include both elements of comparison and
identification." These observations, if I may say so with respect clearly
bring out the legal principles bearing on the issue under discussion.
In my judgment the decision. of the Madras
High Court in Commissioner of Income-tax v. Arunachalam Chettiar (1) correctly
lays down the law on the subject.
Mr. S. T. Desai, learned Counsel for the
assessee placed considerable reliance on the decision of the Bombay High Court
in (1)49, I. T. R. 574.
662 Commissioner of Income-tax Bombay City-II
v. New Citizen Bank of India Ltd. and anr. (1) Therein the court was called
upon to interpret an agreement entered into under S. 49-A.
In that case the court was not required to
interpret the scope of s. 49-D. There is no doubt that some of the observations
made in that case lend support to the arguments advanced on behalf of the
assessee. In my opinion the learned judges of the High Court in that case did
not bring out correctly the-ratio of the decisions in Assam Railways and
Trading Co. (supra) and Rolls Royce's case (supra).
They sought to distinguish those cases on the
basis of the facts of those cases ignoring the legal principles enunciated
therein.
In the result I dismiss these appeals.
JAGANMOHAN REDDY, J.-These are appeals by
certificate from a common judgment of the Madras High Court rendered in three
references under s. 66(1) of the Income-tax Act, 1922 (hereinafter called the
Act') pertaining to assessment years, 1953-54, 1954-55 and 1955-56. In the
reference relating to the first assessment year three questions in respect of
the last two, two questions were referred by the Tribunal. The three questions
relating to the first reference are:-1.Whether on the facts and in the
circumstances of the case the Tribunal, is right in its view that the
Commissioner of Income tax had jurisdiction to revise the order of refund ?
2.Whether on the facts and in the circumstances of the case, the Tribunal is
right in its view that the order of refund under. section 48 read with section
49-D is independent and distinct from the assessment order ? 3.Whether on the
facts and in the circumstances of the case, the Tribunal is right in confirming
the computation of relief as modified by the Commissioner ? In the reference
relating to the last two assessment years, the questions were :1.'Whether on
the facts and in the circumstances of the case, the Tribunal is right in
modifying the order of the Appellate Assistant Commissioner ? 2.Whether on the
facts and in the circumstances of the case the Tribunal is right in its.
interpretation of section 49-D ? Before the High Court the first question on
the first reference w 'not pressed and therefore was answered against the
assessee. The remaining two questions which were considered to be similar to
the two questions in the other two references were also answered against the
assessee.
Before us the second question in the first
(1) 58, I. T, R. 468.
663 reference was not pressed, as such
substantially the third question in that reference and the first and second
questions in the other two references which deal with the validity of the order
of the Commissioner and the High Court need alone be considered in these
appeals.
The assessee who is now dead and is succeeded
by legal representatives was doing money lending business in Malaya as well as
in this country. He also, owned rubber gardens abroad, in respect of the first
assessment year 1953-54 the assessee declared his foreign income as Rs.
2,22,532 and showed a loss on business in India as Rs. 68,858 and income from
'other sources as Rs. 39,142/-. In the other two references it is not necessary
to refer to the incomes earned by him abroad and in India except to say that
the Appellate Assistant Commissioner allowed the appeal in part holding that
the income from all the sources in India have to be considered together just as
income from all sources abroad must be considered together and in that view
held that the net assessed income in India from Malaya is what has suffered
double tax. What is to be determined in these appeals is, on what basis should
the double taxation relief be afforded to the assessee. It will be sufficient
if we take the first assessment as illustrative of the problem which is, posed
in these appeals.
The Income-tax Officer allowed double
taxation relief on a sum of Rs. 1,92,816/by adding income from other sources to
the foreign income and deducting from the total thus computed the loss of Rs.
68,858. The Commissioner in exercise of his powers s under s. 48 read with s.
49-D however held that that computation was wrong because according to him the
business loss of Rs. 68,858 incurred by the assessee can be set off only
against the business profits of Rs. 2,22,532 earned in Malaya resulting in a
business income of Rs. 1,53,674 being the only income from Malaya which can be
considered to have suffered double taxation. In appeal against the order of the
Commissioner, the Tribunal following the judgment in C.I.T. Madras v. Arunachalam
Chettiar(1) came to the conclusion that the 'expression "such doubly taxed
income" can only indicate that it is that portion of the income on which
tax in fact has been imposed and paid by the assessee that qualifies for double
income relief. The High. Court also was of the view that the relief granted by
s. 49-D on such doubly taxed income has reference to the factual double
incidence under two different jurisdictions of tax on identical amount of
income, that is to say, an identical income on which two taxes have been imposed
under the Indian jurisdiction and the other by a foreign' authority.
(1)49 I. T. R. 574.
664 It is clear that a decision in these
appeals will depend on the construction of s. 49-D which bristles with
difficulties and is not easy to resolve. A great deal would depend on the
approach to the question and the meaning to be given to 'such doubly taxed
income'. If we are to approach the construction of the section on a comparison
with the reliefs given under s. 49-A or on the analogy of cases decided under
s. 27 of the United Kingdom Finance Act or on an a priori assumption that the
relief under s. 49-D could not be greater than that which can be given under s.
49-A or on the basis of reciprocity under s. 27, we venture to think it will
not lead to satisfactory conclusion. S. 49-A empowers the Central Government to
enter into agreements with the Government of any country outside India for the
granting of relief in respect of income on which have been paid both income-tax
(including super-tax) under the Act and the income-tax in that country or with
the Government of any country outside India for the avoidance of double
taxation of income, profits and gains under the Act and under the corresponding
law in force in that country and may, by notification in the Official Gazette.
make such provisions as may be necessary for implementing the 'agreement.
Before the amendment of that section by the Finance Act, 1953 with effect from
1st April 1953, there were other provisions giving relief in respect of Part B
States and Dominion income-tax and agreement for avoidance of double taxation
in India, Pakistan or U.K. apart from s. 49 which granted relief in respect of
income-tax-. In 1948 s. 49 which granted relief in respect of income taxed both
in India and in U.K. was omitted and s. 49-A as it then was, was amended to
enable Central Government to make provision by notification to grant relief in
respect of income on which both India and United Kingdom levied tax. Under the
amended s. 40-A the Income-tax Double Taxation in United Kingdom Rules were
made. It would appear on the relevant provisions an assessee can claim double
taxation relief if he can show that he has paid tax on the same income both in
India and in the foreign country. In order to obtain the relief it was also necessary
to show that the-income must have been charged to tax in both countries. Where
a resident of India earns income in a foreign country with which the Government
of India has no arrangement for relief against or avoidance of double taxation,
relief has been afforded to him under s.49-D.
We may point out that for the first time
relief in respect of tax charged in a country which did not provide, for relief
in respect of the British Indian income-tax was granted under the said section
introduced by the Indian Income-tax (Amendment) Act 1939 in the Act of 1922. To
this an Explanation was added by Amendment Act 23 of 1941 which makes it clear
that the relief extends both to income-tax and to super-tax. Thereafter, a new
section 49-D was substituted by the Amendment Act, 1953 with effect 665 from
1st April 1952 and by the Finance Act, 1956 sub-ss. (3) and (4) were inserted.
Since the last two sub-sections deal with income of a resident in the taxable
territories accruing or arising to him during that year in Pakistan they do not
assume any relevance for the purposes of this case.
We give below in juxta position s. 49-D as it
was prior to the amendment in 1953 and that inserted by the 1953 Amendment Act:Prior
to Amendment Act, 1953 After Amendment Act, 1952 49D. Relief in respect of tax
in 49D. (1) If any person who is country not providing for relief in resident
in the taxable territories respect of Indian Income-tax-if in any year proves
that, in respect any person who has paid by deduction of his income which accrues
or otherwise Indian In arises during that year without come-tax for any year in
respect the taxable territories (and which of any income arising without the is
not deemed to accrue or arise taxable territories in a country the in the taxable
territories), he has laws of which do not provide for paid in any country with
which any relief in respect of income there is no reciprocal arrangement tax
charged in the taxable terrifortories relief or avoidance of double s provided
that he has paid taxation, income-tax, by deduction income-tax by deduction or
other or otherwise, under the law wise under the laws of the said in force in
that country, he shall country in respect of the same in be entitled to the
deduction from come, he shall be entitled to the Indian income-tax payable by
deduction from the Indian In him of a sum calculated on such, come-tax payable
of a sum equal double taxed income at the Indian to one-half of such Indian
income rate of tax or the rate of tax of tax or to one-half of such tax pay the
said country, whichever is the able in the said country, which lower.
ever is less. (2) The Central Government
Explanation-The expression may, by notification in the Official 'Indian
Income-tax in this section Gazette, declare that the provisions -means
income-tax and super-tax a of subsection (1) shall also charged in accordance
with the apply in relation to any such in provisions of this Act. come accruing
or arising in the 666 United Kingdom and chargeable under this Act for the year
ending on the 31st day of March, 1950, or f or the year ending on the 31st day
of March, 1951, or for the year ending on the 31st day of March, 1952.
Explanation-In this section.(i)the expression
"Indian income-tax" means income-tax and super-tax charged in
accordance with the provisions of this Act;
(ii)the expression "Indian rate of
tax" means the rate determined by dividing the amount of Indian income-tax
after deduction of any relief due under the other provisions of this Act but before
deduction of any relief under this section, by the total income;
(iii)the expression "rate of tax of the
said country" means income-tax and super-tax actually paid in the said
country in accordance with the corresponding laws of the said country after
deduction of all relief, due, but before deduction of any relief due in the
said country in respect of double taxation, divided by the whole amount of
income assessed in the said country;
667 (iv)the expression "income tax in
relation to any country" includes any excess profits tax or business
profits tax charged on the profits by the Government of that country and not by
the Government of any part of that country or a local authority in that
country.
That section as is obvious, grants double
taxation relief in respect of taxes on income charged in any foreign country by
deduction or otherwise under the law in force in that country. The object of
the section is that the amount of Indian income-tax paid or the amount of tax
paid in the foreign country whichever is the lower is allowed as a deduction
from the tax payable under the Act on such doubly taxed income. The words
"in respect of the same income" in the pre amendment section and
"such doubly taxed income" emphasized by us assume importance and
will be considered in the context of the respective sections and the object
with which they were enacted.
The Tribunal thought that the business loss
in India must first be set off wholly against the business profits earned in
Malaya and the fact that this results in application of s. 24(1) does not take
away the necessity for the limitation. But before us the learned advocate for
the Revenue conceded that neither s.24 is applicable nor would it be necessary
to submit that the income on which a tax has been paid abroad must be under the
same head of income as that specified in s.6 of the Act. What he in fact
contends is that the income from interest and from property assessed in India
amounting to Rs. 39,142 did not arise outside India, as such it cannot be taken
into account in determining whether the tax paid outside is not doubly taxed.
This begs the question. Indeed in his earlier contentions he had indicated that
the basis upon which the Revenue is resisting the claim is that the identity of
the income is not the same, that is, for granting relief (a) there must be
numerical identity of the income which is subject to tax both in India and
abroad, the numerical identity being the amount of income on which tax is paid,
and (b) there should also be the sameness of the head.
Secondly, he contended that relief by way of
deduction is allowable on such portion of that income which has actually been
subjected to tax twice over after allowing for set off or deductions if any.
Thirdly, having regard to the scheme of the Act and the method of computation
of income arising both within and without India, income must be considered
under separate heads in order to 668 ascertain whether any income has been
actually taxed or not.
He therefore submits that Rs. 39,142/has no
relation at all with the income arising in Malaya and cannot be taken into
consideration under s.49-D. This would be so, he says, even if it came under
the same head. In support of these contentions the decisions of the Court of
Appeal in England in Rolls Royce Ltd. v. Short(1), that of House of Lords in
Assam Railway and Trading Co. Ltd. v. The Commissioner of Inland Revenue(2) and
the case of this Court in O.A.P.
Andippan v. Commissioner of Income-Tax,
Madras(2) were cited. We may at once state that these decisions are rendered on
the provisions which are not in pari materia with the provisions in s. 49-D.
The case of this Court in Andiappan was under
s.49-A-A where the question was, whether the assessee was entitled to abatement
in India under Art. III of the agreement for relief and avoidance of double
taxation in India and Ceylon read with item 8 of the Schedule to the agreement.
It was held on the terms of that article and the clause in the schedule that
what was attributable to the Ceylon law was only that tax which was ultimately
levied on the assessee and demanded, but he was not entitled to abatement of
tax that he would have to pay before deduction of the allowance given by
s.45(2) of the Ceylon Income Tax Ordinance 1932.
This case therefore does not help us in
ascertaining what 'doubly taxed income' is for the purpose of s.49-D as it was
decided on the terms of the provisions of the Ceylon law according to which tax
was ultimately levied in respect of which relief was claimed.
The other two English cases dealt with the
interpretation of s. 27 of the Finance Act 1920. The amendment in 1927 was only
in respect of the meaning of "-appropriate rate in the United United
Kingdom Income Tax" which is not relevant for the present consideration.
Section 27 of the Finance Act is as under :" (1) If any person who has
paid, by deduction or otherwise, or is liable to pay, United Kingdom income tax
for any year of assessment on any part of his income proves to the satisfaction
of the Special Commissioners that he has paid Dominion income-tax for that year
in respect of the same part of his income, he shall be entitled to relief from
United Kingdom income-tax paid or payable by him on that part of his income at
a rate thereon to be determined as follows :(a)if the Dominion rate of tax does
not exceed one-half of the appropriate rate of United Kingdom (1) 10 T. C. 59.
(3) 821. T. R. 876.
(2) 18 T. C. 509.
669 income-tax, the rate at which relief is
to be given shall be Dominion rate of tax :
(b)in any other case the rate at which relief
is to be given shall be one-half of the appropriate rate of the United Kingdom
income tax.
* * * It will be observed that in this
section the words "in respect of the same part of the income" and 'on
that part of his income have significance in understanding the English
decisions in respect of the double tax relief given in the United Kingdom.
Similar words, viz. "in respect of the same part of his income" and
"on that part of his income" are used in the corresponding provision
in clause 3 of the notification of the Government of India issued under s. 49A.
In the Rolls Royce case a British company
trading in India was assessed to and paid Indian income-tax for the year
1920-21 on a profit of pound 4,120, the profits of its Indian branch. It was
also assessed to and paid in the United Kingdom income-tax for the same
assessment year under the law of that country on the average of the whole of
its profits wherever made for three preceding years. The assessee claimed that
as it had paid both United Kingdom tax and Indian income-tax for assessment
year on its Indian profits for those years, it was entitled to relief under s. 27
from United Kingdom income-tax. The claim was negatived by Rowlatt, J. as no
income-tax was paid in respect of the Indian income of 1920-21. This decision
was upheld by the Court of Appeal. Rowlatt, J. at p. 67 gave the reasons for
disallowance thus :"When the Indian income in the year of assessment
calculated according to Indian methods is more than the Indian income
calculated according to British methods, then he will only get relief
calculated with reference to the amount of the English calculated income upon
which he has paid English Income Tax. Where the Indian income calculated
according to the Indian method is less than the Indian income calculated for
the United Kingdom Income Tax in the United Kingdom method, will he be able
conversely to deduct the rate from the English Income Tax although that would
be giving him back more tax than he has actually paid in India?" In the
Court of Appeal, Pollock, M.R. said at p. 70"The fact of paying a tax in a
Dominion does not induce relief. The basic condition is that a person has paid
tax on his income over here-then, if some part of that income so charged and
assessed to tax in the United 670 Kingdom can be identified and proved to have
paid Dominion tax, that same part which has suffered dual taxation can be
relieved of the tax paid here, up to the measure of relief given by. the
section." Warrington, L. J. observed at p. 71-72:-"Having regard to
the different modes of assessment prevailing in England and India respectively,
the profits of the Indian business chargeable in the two countries can never be
identical in amount, and it is therefore clear that in separating from the
entire income the part of the income to which section 27 is applicable, regard
must be had to the source from which it is derived and not to its amount. In
this case the part of the income to be considered is the profits of the Indian
branch." In Assam Railways & Trading Company case the House of Lords
were considering the case of an assessee, company which earned profits in India
amounting to pound 186,808 which sum was liable to United Kingdom income-tax.
By the Indian Income-tax Act the assessee was allowed to deduct interest on
debentures and other items which deducted the profits assessable to Indian
income tax to pound 129,365 upon which the same tax was paid in India. The
company claimed that its total income assessable to tax in the United Kingdom
could be treated as having borne income-tax in India. It was held that the
Company had not borne double taxation on that part of its income which was
applied in payment of debenture interest or on the garden profits and was not
entitled to relief in respect thereof. Lord Blanesburgh while pointing out that
the more the question raised in the appeal is considered the greater is the
difficulty it presents said he was inclined to agree with the construction
placed by Lord Warrington who in his speech indicated the reasoning for the
particular construction placed by him.
The observations of Lord Warrington were
stated at pp. 534535 thus :"On the question of construction the contention
of the Appellants was that "that part of his income" refers only to
the source from which the income is derived. The source in this case was the
Indian business of the company, and it was contended that inasmuch as the whole
of that income was taxed to United Kingdom Income Tax in the sum of pound
186,750, it is in respect of that sum that relief should he given. I cannot
agree with this contention. The word "part" is not in any sense a
word of art with a peculiar meaning derived from the subject matter in
connection with which it is used. We are here dealing with a sum of money
referred to as income. "Part" of a sum of money means in its ordinary
671 signification so many pounds, shillings and pence out of a larger amount.
If the income is pound 1 00, a small sum, say pound 50, would properly be
described as a part thereof.
In the present case the part of his income on
which the taxpayer has paid tax in England is pound 186,750. In India he has
paid tax on a smaller part numerically of the same income.
To obtain relief. he has to prove that he has
paid Dominion tax on the same part of his income as that on which he paid
United Kingdom tax. He can only prove this in respect of the smaller sum. I see
no reason why, for the purpose of identification, any other meaning should be
given to the word "part" than the numerical meaning. "Double
taxation" is not in terms mentioned in the section, but it is obvious that
the object of the provision is to obtain pro tan to the avoidance of that
result.
The tax payer has paid Dominion Income Tax in
respect of Ex of his income; he is entitled to relief in respect of pound x
part of the same income and to no more." Section 27 of the Finance Act and
the earlier cases on the interpretation of that section were again considered
by the House of Lords--a case not cited at the Bar-in Inland Revenue
Commissioners v. National Mortgage and Agency Co., of New Zeland. It was again
pointed out that the true construction and effect of section 27, a difficult
section, had led to arguments and differences of opinion in the Court and had
come more than once before the House of Lords. In that case it was ultimately
held that when a company controlled in the United Kingdom carries on business
in a Dominion the relief from the United Kingdom Income-tax under s.27(1) in
respect of that business is to be determined by ascertaining the assessable
income following the legislative directions in those respective countries as to
allowances or deductions and thereafter without scrutinizing those allowances
or deductions by an individual comparison with a different system in other part
of the Commonwealth, relief should be granted to the extent of the smaller
amount. there was no need to record anything else except the two statutory
incomes of the business taking care to see that neither includes income from
any other source. In this case no deduction was permissible in respect of
debenture interest' for the purpose of United Kingdom assessment but the
Dominion Law excluded from the assessable income the sum paid in respect of the
debenture interest to the company under the Dominion law as agent of the
debenture holders was assessable in respect of the debenture interest with a
right to recoup itself from the debenture' holders for the tax so paid. In fact
it was unable to exercise that right as the contracts under which the interest
was payable were made in the U.K. and therefore though the company was assessed
(1) [1935] A. C. 524.
--L499Sup. C. I. /73 672 on the debenture
interest in the Dominion and duly paid the tax ultimately the burden of that
tax rested upon the company. This special circumstance alone was therefore held
to be sufficient for holding that the relief claimed for an adjusted sum of
pound-633,609 paid by the company under s.27(1) of the Act of 1920 was
justified. The decision of the Court of Appeal was affirmed subject to a
difference as to the ground on which the question of debenture interest should
preferably be decided. The Lord Chancellor agreed in all respects with Romer L.
J. on principle namely (1) that the word 'income' in the section does not mean the
real income but the statutory or notional income by means of which tax is
calculated; (2) That if this statutory income in the Dominion is pound A and in
the United Kingdom the statutory income from the same source is pound (A+B)
relief will be given in respect of pound A. (3) That an analysis of the two
statutory incomes for the purpose of comparing for example the respective
allowances for repairs or depreciation is inadmissible. Lord Macmillan pointed
out at pp. 554-555 "The principle of section 27 is that the same fund of
income shall not bear the full burden of both the United Kingdom and Dominion
income tax and in the present instance it is clear that pound 3 3,609 debenture
interest has both here and in New Zeland been subjected though under different
schemes to the full burden of incometax. " These cases show that (1) the
actual tax paid on the Dominion income statutorily determined would alone be
considered for relief (2) that the relief which under s.27 can be claimed is
the statutory income of the Dominion derived from the same source which has
been taken into account in the United Kingdom from the same source. The word
'source' has been differently understood by different law Lords but in effect,
as Lord Wright observed in the Assam Railway case, the words "the same
part of his income" are apt to include both elements of comparison and
identification. In our view, we can derive no benefit from these, cases unless
we hold that "such doubly taxed income" in s.49-D as being equivalent
to "the same part" of the assessee's income in section 27 or "in
respect of the same income" in the notification under s.49-A.
It may be pointed out that s.49-D prior to
amendment in 1953 afforded relief calculated at half of the Indian income-tax
on the income in question or half of the tax payable in the country in respect
of the same income in the year of assessment in which the income arose
whichever is less. It may be mentioned that after the Income-tax (Amendment)
Act 1939 the residents of India became liable annually to be taxed on their
world income which naturally would bring to tax income which has accrued in a
foreign country and has been subjected to tax there and would also be subject
to tax under the Act. Immediately after the amendment 673 of the Act second
World War broke out and the Indian citizens earning income outside the taxable
territories became the victims of aggression. In many cases their assets
suffered damage and they had to leave their business and property and return to
India. After the close of war in 1946 conditions in the erstwhile countries in
which these citizens were engaged in earning incomes remained unsettled and
uncertain. It took time even for conditions to settle down and become normal
and even then the change of outlook in those countries had to be faced
particularly in the field of fiscal laws before our citizens could have the
confidence to re-invest in ventures abroad. Our own country was troubled with
partition upheavals. By 1950 things became more settled and the Government of
India with a view to encourage more and more Indian residents to establish
branches in countries with which there is no special agreement for the
avoidance of double taxation, by its Press Note, Finance Department, New Delhi
dated May 20, 1950, made it known that certain proposals were being considered
by it in that behalf and in accordance with that Press Note the Income-tax
Amendment Bill 1952 was introduced to amend the section with effect from the
assessment year ending 31st March 1950 covering its operations unilaterally
even to the United Kingdom. That Bill as stated earlier, was subsequently
enacted by the substitution of a new s.49-D for the old one. The objects and
reasons for the amendment of s.49-D of the Act and Clause 25 of the Amendment
Bill of 1952 gives the following reasons:-"The provision as proposed to be
amended secures that this unilateral relief will be increased from one-half to
the abatement of tax at the full Indian rate or the full foreign rate whichever
is lower. This amendment implements the concession announced in a Press Note on
the 20th May, 1950 and would encourage persons resident in India to establish
branch business in foreign countries. As respects the income accruing or
arising in the U.K. the Central Government is empowered to make this unilateral
basis of relief applicable, if necessary, for the assessment years 1949-50,
1950-51 and 195152." The Select Committee added the words "but before
deduction of any relief due in the said country in respect of double taxation"
in Explanation (iii) and also added Explanation (iv). In respect of these
amendments it stated :"Apart from a clarification amendment in section
49-D (2) Explanation (iii) the other amendment is to remove one source of
hardship.
Generally the Excess Profits Tax or the
Business Profits Tax would be allowed as a deduction in the foreign country in
determining the income liable to tax in that country but not so in India.
674 Therefore if the tax were not taken into
account the combined relief on income allowable to take in India and in the
foreign country would not be adequate." In interpreting the amended s.49-D
where the assessee is entided to the deduction from Indian income tax payable
by him under the Act, the tax paid in a foreign country are we to give the same
meaning to the words "of a sum calculated on such doubly taxed
income" as that which has to be given to the words "in respect of the
same income' occurring under the repealed s.49D"? In other words, is the
phrase 'such doubly taxed income of similar import as the "same
income".
In our view the word "same" would
connote that it is 'identical though in all cases it may not mean that. It may
also mean not different. It frequently means of the kind or species or
corresponding to and therefore the same income in the context would mean the
same kind or species or identical income earned in a foreign country on which
tax has been paid in that country in respect of which relief is being claimed
from being again subjected to tax under the Act. If the concession that was
being given by the amendment for encouraging Indian residents to start business
in foreign countries, was only to give relief at the full rate of Indian
income-tax instead of half of such tax, all that was necessary was to delete
the words "one half of" occurring in s.49-D as it was prior to its
amendment. But that is not what the legislature has done. It has re-drafted the
entire section with a different emphasis and this advantage was also afforded
unilaterally under sub-s.(2) in relation to any income accruing or arising in
U.K. and chargeable under the Act for the period specified therein. Apart, from
giving full relief at the Indian rate of tax or the rate of tax of the said
country whichever is the lower the assessee has to satisfy certain
prerequisites before his claim to double tax relief can be accepted. He must
show (a) that he is a resident in the taxable territories in the year in which
relief is claimed-, (b) that in respect of his income on which relief is
claimed that it had accrued or arisen to him without the taxable territories
and (c) that he has paid in that country income-tax by deduction or otherwise
under the law in force in that country. If he satisfies these requirements he
will be entitled to the deduction from the Indian income-tax payable by him of
a sum calculated on such doubly taxed income at the Indian rate of tax or the
rate of tax of the said country which-, ever is the lower. The words "such
doubly taxed income" can have reference to the tax which the foreign
income bears once again the burden of Indian income-tax by its being included
in the total income chargeable under s.3 read with s.2(15) which defines it as
the total amount of income, profits and gains referred to in sub-(1) of s.4
computed in the manner laid down in the Act.
A reference to s.4 (1) (b) (ii) would show
that the income which accrues or arises to an assessee without the taxable
territories during such year is 675 to be included in the total income so that
the income under any of the heads enumerated in s.6 which have accrued or
arisen to the assessee without the taxable territory and is subject to the tax
under the law in force in that country,.
is included in his total income attracting
the levy of charge under the Act. This would again be taxed under the Act and
would therefore be doubly taxed income. Or, it could mean that the income from
the same or similar head or source which accrued or arose to him outside the
taxable territories during such year and upon which tax was paid by him, can be
considered to be doubly taxed if under the head it is again chargeable to tax
under the Act. In other words, is the criteria for determining an income as
doubly taxed income, the head or source of income under the Act to be
considered with the same head or source of income in respect of which tax was
paid under the foreign law, or is the emphasis on the tax paid by deduction or
otherwise under the law in force in a foreign country in respect of which
relief is being given by reason of the inclusion of that income in the total
income of the assessee which is again subjected to tax under the Act.
In Arunachalam Chettiar's case the Madras
High Court gave a similar interpretation to s.49-D as was given by the English
cases to s.27 of the United Kingdom Finance Act, 1920 for holding that
"such doubly taxed income" really purports to indicate that it is
only that portion of the income on which tax has in fact been imposed and been
paid by the assessee that is exigible for the double tax relief." The
decision did not take into consideration the legislative history or the change
in the language of the amended s.49-D nor the concession which was sought to be
given to encourage residents in India to earn income outside the taxable
territories. We do not say that the question to be determined is easy to
resolve and in this we are in distinguished company of Judges who have felt
similar difficulties, but in our view, what commends to us most is that once it
is recognised that the section we are interpreting does not make the basis of
relief the tax paid on the income from the same head or source, as we have
shown that the change in the language does not, then the relief to which an
assessee would be entitled would be the amount of tax paid on the foreign
income which by its inclusion in the total income once again bears tax under
the Act. The word 'such' in the phrase 'such doubly taxed income' has reference
to the foreign income which is again being subjected to tax by its inclusion in
the computation of the income under the Act and not the same income under an
identical head of income under the Act. The income from each head under s.6 is
not under the Act subjected to tax separately, unless the legislature has used
words to indicate a comparison of similar incomes but it is the total income
which is computed and assessed as such, in respect of which tax relief is given
for the inclusion of the foreign 676 income on which tax had been paid
according to the law in force in that country. The scheme of the Act is that
although income is classified under different heads and the income under each
head is separately computed in. accordance with the provisions dealing with
that particular head of income, the income which is the subject matter of tax
under the Act is one income which is the total income. The income tax is only
one tax levied on the aggregate of the income classified and chargeable under
the different heads; it is not a collection of distinct taxes levied separately
on each head of income. In other words, assessment to income-tax is one whole
and not group of assessments for different heads or items of income. In order,
therefore, to decide whether the assessee is entitled to double taxation relief
in respect of any income, the consideration that the income has been derived
under a particular head would not have much relevance. There is indeed nothing
in the language of section 49-D which either expressly or by necessary
implication restricts the grant of double taxation relief to incomes under the
same head. In this view, we discharge the answers given by the High Court, and
answer them in the negative and in favour of the assesssee.
An application for intervention on behalf of
the Indian Bank Madras has been filed as an identical question is stated to be
pending before the income-tax authorities. Though we permitted the intervention
the learned advocate did not urge any new argument.
In the result the appeals are allowed with
costs here and in the High Court.
V.P.S. Appeal allowed.
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