1990 (8) TMI 199 - AT - Income Tax

Summary

Issues:
1. Tax liability on commission received by an international airways carrier for collecting foreign travel tax.
2. Applicability of Double Taxation Avoidance Agreement between India and the USA.
3. Tax treatment of income based on the system of accounting maintained by the assessee.

Analysis:

1. The primary issue in this case is the tax liability of an international airways carrier on the commission received for collecting foreign travel tax. The carrier was obligated to collect this tax on behalf of the Government of India. The dispute arose regarding whether the commission received for this service is taxable. The carrier argued that the commission should not be taxed, citing provisions of the Double Taxation Avoidance Agreement between India and the USA. However, the Income Tax Officer (ITO) reopened assessments to tax the commission. The carrier further claimed deductions for payments made to another party for tax collection services, which were denied by the ITO. The Commissioner of Income Tax (Appeals) ruled that the commission would be taxable only in the year of receipt, considering the carrier's cash system of accounts.

2. The second issue pertains to the applicability of the Double Taxation Avoidance Agreement. The carrier contended that the income derived from the commission should be exempt under the agreement. However, the tribunal analyzed the agreement's provisions and concluded that the income from the collection of foreign travel tax does not fall under the exempted category specified in the agreement. The tribunal emphasized that the levy of foreign travel tax is on passengers, not the carrier, distinguishing it from sales tax. Therefore, the income from tax collection is not considered part of the carrier's trading receipts and is taxable.

3. The third issue involves the tax treatment of income based on the accounting system maintained by the carrier. The carrier argued that since they followed a cash system of accounts, the income should only be taxed upon receipt. However, the tribunal rejected this argument, citing a precedent that non-residents must be assessed on an accrual basis for income accruing from India. The tribunal held that the cash system of accounting is not applicable to non-residents, and income accruing must be taxed when it accrues, regardless of actual receipt.

In conclusion, the tribunal allowed the Departmental Appeals, ruling in favor of taxing the commission received by the international airways carrier for collecting foreign travel tax, rejecting the exemption claims under the Double Taxation Avoidance Agreement and the cash system of accounting argument.