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Issues involved:
Interpretation of Double Taxation Avoidance Agreement between India and Malaysia for assessment year 1982-83. Summary: The High Court of Karnataka considered the question of whether income earned in Malaysia by an Indian resident is liable to be included in total income for assessment year 1982-83. The assessee claimed exemption based on the Double Taxation Avoidance Agreement between India and Malaysia. The Income-tax Officer included the Malaysia income in total income, requiring tax payment in Malaysia first. The Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, citing the agreement's exemption provision. The Revenue argued that Indian residents' global income is taxable, referencing sections 4 and 5 of the Income-tax Act, and the agreement's provisions on taxation of income sources in Malaysia. The Revenue contended that the agreement does not override India's power to tax income, emphasizing clauses related to income-tax in the agreement. The assessee's counsel highlighted clauses specifying taxation jurisdiction for immovable property, business profits, and dividends in Malaysia. The Court analyzed the agreement's impact on India's taxing authority, noting that specific provisions in the agreement prevail over general Income-tax Act provisions. The Court concluded that the agreement limits India's power to tax certain income categories as per agreement clauses, requiring satisfaction of specific conditions for double taxation relief. The Court emphasized that the agreement governs income taxation when specific provisions exist, overriding general Income-tax Act provisions. The Circular No. 333 issued by the Central Board of Direct Taxes clarified that agreement provisions prevail over Income-tax Act provisions when computing income. Consequently, the Court ruled in favor of the assessee, affirming that the agreement limits India's taxing authority in specific cases. The question was answered in the affirmative against the Revenue, and the reference was answered accordingly.
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