1977 (6) TMI 9 - HC - Income Tax

Issues Involved:
1. Determination of double taxation relief in respect of super-tax on income taxed both in India and the U.K.
2. Calculation of Indian super-tax and its adjustment concerning income referable to Pakistan.
3. Interpretation of the term "Indian rate of tax" under rule 2(b) of the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948.

Detailed Analysis:

1. Determination of Double Taxation Relief in Respect of Super-Tax:

The primary issue was whether the double taxation relief in respect of super-tax on income taxed both in India and the U.K. should be determined with reference to the total income of Rs. 3,73,117 or the income adjusted by excluding Rs. 1,19,220 referable to Pakistan, resulting in Rs. 2,53,897.

The Tribunal, Appellate Assistant Commissioner, and the Income-tax Officer had differing views on this. The Tribunal observed that the double income-tax relief in respect of income-tax was regulated by section 49 of the Act, but for super-tax, no such adjustment was envisaged under clause 2(b) of the Notification No. 50.

2. Calculation of Indian Super-Tax and Adjustment for Income Referable to Pakistan:

The Tribunal noted that while calculating the Indian rate of super-tax, the numerator (Indian super-tax) should be Rs. 15,868.46, and it should be divided by the total income of Rs. 3,73,117 without any further adjustment. This was derived from the language of clause 2(b) of the Notification No. 50, which did not provide for any adjustment in the total income for super-tax purposes.

The Tribunal pointed out that the income from Pakistan should be deducted as exempted income, reducing the total income from Rs. 3,73,117 to Rs. 2,53,897. However, for super-tax, no such deduction was warranted, leading to a discrepancy in the calculation method proposed by the Appellate Assistant Commissioner.

3. Interpretation of "Indian Rate of Tax" Under Rule 2(b):

The definition of "Indian rate of tax" in rule 2(b) was crucial. The rule stipulated that the Indian rate of tax means the amount of Indian Income-tax exclusive of super-tax after deduction of any relief under other provisions of the Act, divided by the total income after deducting any income exempted from tax, added to the Indian super-tax before any relief due to the claimant under these rules, divided by the total income.

The Tribunal and Appellate Assistant Commissioner interpreted this differently. The Appellate Assistant Commissioner included deductions for reliefs in calculating the Indian income-tax but not for super-tax. The Tribunal upheld this for income-tax but not for super-tax, asserting that the total income for super-tax calculation should remain unadjusted.

Conclusion:

The court concluded that the correct approach was the one taken by the Appellate Assistant Commissioner. The double taxation relief in respect of super-tax should be determined by dividing the gross super-tax in India (Rs. 23,319.81) by the gross total income (Rs. 3,73,117), resulting in 12 pies in a rupee. This interpretation aligned with the statutory language of rule 2(b) and ensured consistency in the application of the rule.

Final Judgment:

The question referred was answered by stating that the double taxation relief in respect of super-tax on income taxed both in India and the U.K. should be determined by dividing Rs. 23,319.81 (gross super-tax in India) by Rs. 3,73,117 (gross total income), equating to 12 pies in a rupee. The revenue was ordered to pay the costs of the assessee.

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