1967 (1) TMI 15 - HC - Income Tax

Ceylon Income Tax Ordinance, 1932 - identical amount will be assessed in each country by applying its own laws - Then that country which charges income in excess of the amount allowed is required to allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country - tax attributable in the articles is the gross tax and not the tax arrived at after deducting the reliefs permissible under the laws of a particular country

Summary

Issues:
Interpretation of article III of the Agreement for Relief from or Avoidance of Double Taxation between India and Ceylon in relation to abatement of taxes for assessment years 1959-60 and 1960-61.

Analysis:
The judgment delivered by the High Court of MADRAS involved two petitions seeking to quash orders by the Commissioner of Income-tax and the Income-tax Officer for the assessment years 1959-60 and 1960-61. The dispute centered around the construction of article III of the Agreement between India and Ceylon for Double Taxation Relief. The petitioner, assessed as an individual resident in India with income from a grocery business in Colombo, faced differing tax assessments in both countries. The Ceylon authorities certified the income-tax payable, while the Indian Income-tax Act assessed taxes on the same income. The petitioner claimed abatement equivalent to the tax certified by Ceylon, but the Income-tax Officer denied this, leading to the petitions.

The crux of the argument was the interpretation of article III of the Agreement, which allowed for abatement of taxes in cases of double taxation. The petitioner contended that abatement should be granted as claimed, irrespective of the relief under Ceylon's tax laws. However, the court disagreed with this view. Article III stipulated that each country would assess income under its laws, and in cases of excess taxation, abatement would be allowed. The Schedule attached to the Agreement specified the percentages of income each country could charge, with a provision for abatement if income was charged in excess. The court emphasized that tax attributable to the excess should consider deductions permissible under the relevant laws.

The court clarified that the intention of the Agreement was to prevent double taxation and provide relief from excessive tax burdens. Therefore, abatement should be based on the tax determined to be payable after statutory deductions, not the gross tax amount. Allowing abatement equal to the gross tax assessed in Ceylon would result in double relief for the petitioner, contrary to the Agreement's purpose. Consequently, the petitions were dismissed with costs, upholding the Income-tax Officer's decision to deny abatement equivalent to the gross tax assessed in Ceylon.