2000 (10) TMI 929 - AT - Income Tax

Summary

Issues:
1. Relief granted under the DTA agreement with Japan.

Analysis:
The appeal was filed by the Department against the Commissioner of Income-tax (Appeals) order for the assessment year 1989-90, specifically regarding the relief granted under the Double Taxation Avoidance (DTA) agreement with Japan. The assessee, a non-resident shipping company, had suffered a world loss. The dispute arose as the Assessing Officer did not allow the relief of 50 per cent. on the profit to the assessee-company, citing that no tax was paid in Japan due to the world loss suffered by the company. However, the Commissioner of Income-tax (Appeals) granted the relief by following the Tribunal's decision, which was based on the interpretation of the DTA agreement. The main contention was whether the relief under the DTA agreement is contingent upon the Japanese company suffering a world loss, which was not explicitly stated in the agreement.

The Tribunal analyzed the provisions of the DTA agreement between Japan and India, specifically Article V(2), which did not contain any condition that the relief is dependent on the Japanese company suffering a total loss worldwide. The Commissioner of Income-tax (Appeals) emphasized that the crucial condition for granting relief is that the Japanese company should have been assessed to tax in India for its operations in India, resulting in some tax payable by the assessee-company. This interpretation was in line with section 90(2) of the Income-tax Act, which aims to provide more beneficial provisions to the assessee. The Tribunal also referred to its previous orders and a judgment of the jurisdictional High Court, which supported the assessee's entitlement to the DTA relief under the shipping agreement with Japan.

The Tribunal further clarified that the occurrence of losses in Japan or on a global scale is irrelevant when determining the eligibility for DTA relief under the agreement. The essential conditions were that the profit should be derived from the operation of ships between India and Japan and that the ships should operate between the two countries, not predominantly in only one. Based on the interpretation of the DTA agreement, previous tribunal orders, and the High Court judgment, the Tribunal upheld the Commissioner of Income-tax (Appeals) direction for the Assessing Officer to allow the DTA relief at the appropriate rate to the assessee-company. Consequently, the appeal filed by the Department was dismissed, affirming the decision in favor of the assessee.