2002 (11) TMI 81 - HC - Income Tax

Scope of section 91(1) of the Act. - Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee is entitled for double income-tax relief under section 91(1) in respect of income from Tanzania without adjusting the losses from Thailand Branch? - in certain cases the argument of the Department based on aggregation of income would result in defeating the scheme of section 91(1). Lastly in this particular case itself the order of the Income-tax Officer shows that income from dividend from Malaysia amounting to Rs. 55, 25, 000 is not included in view of the agreement between India and Malaysia. The working on page 24 of the paper book made by the Income-tax Officer shows that even the Income-tax Officer has proceeded to calculate the relief on country-wise basis and not on the basis of aggregation of income. - We therefore answer the above question in the affirmative i.e. in favour of the assessee and against the Department.

Summary

Issues:
Interpretation of section 91(1) of the Income-tax Act, 1961 for double income-tax relief in the case of a taxpayer with business operations in multiple countries.

Detailed Analysis:

Facts:
The case involved a taxpayer with business operations in India, Tanzania, and Thailand. The issue arose when the Income-tax Officer adjusted losses from the Thailand branch against income from Tanzania for double income-tax relief under section 91(1) of the Act. The Department disputed this adjustment, leading to appeals and references to the High Court.

Arguments:
The Department argued that losses from the Thailand branch should be set off against income from Tanzania for computing total income, citing the need for aggregation under section 72 of the Act. On the other hand, the assessee contended that relief under section 91(1) should be calculated country-wise, not aggregating income from various branches. The assessee emphasized that the relief aims to prevent double taxation and should be based on income arising in a specific country.

Findings:
The High Court analyzed section 91(1) and explained that the relief is intended to be calculated on a country-wise basis, not through aggregation of income from all foreign countries. The court highlighted that the relief is granted by deducting foreign tax paid on doubly taxed income from the Indian tax payable. The judgment emphasized that the scheme of section 91(1) requires a country-specific approach to determine the relief accurately.

The court provided examples to illustrate the practical challenges of applying the Department's aggregation-based argument, showing how it could lead to inconsistencies and defeat the purpose of the relief provision. The judgment emphasized the importance of interpreting section 91(1) in a manner that aligns with its objective of preventing double taxation and ensuring fair relief calculation based on income from individual countries.

Conclusion:
The High Court ruled in favor of the assessee, affirming that relief under section 91(1) should be calculated country-wise, rejecting the Department's argument for aggregating income from multiple branches. The judgment disposed of all references related to the common issue, with no costs awarded.