1984 (7) TMI 232 - AT - Income Tax

Summary

Issues:
1. Inclusion of foreign income in the total income of the assessee under the Avoidance of Double Taxation Agreement between India and Malaysia.
2. Interpretation of the Double Taxation Avoidance Agreement.
3. Validity of the directions given by the AAC regarding the foreign income taxation.
4. Application of the Special Bench decision of the Tribunal in similar cases.

Issue 1: Inclusion of Foreign Income:
The appeal concerns the inclusion of foreign income of Rs. 12,528 from a Malaysian firm in the total income of a resident HUF. The ITO initially included the share income in the total income subject to DIT Relief. However, the AAC deleted the foreign income based on a Tribunal decision and the observation of the Madras High Court in a different case. The Revenue appealed, arguing that the foreign income should be included as per the IT Act and the High Court's observation. The Tribunal noted that the issue was fully considered in a previous case and upheld the AAC's order based on the Special Bench decision, which held that the foreign income was not taxable in India.

Issue 2: Interpretation of Double Taxation Avoidance Agreement:
The AAC directed the ITO to delete portions of the foreign income assessed in Malaysia, stating that if the income was taxed in Malaysia, it should not be taxable in India, except for rate purposes. The Tribunal disagreed with the AAC's interpretation of the Double Taxation Avoidance Agreement and emphasized the need to determine whether the foreign income was actually taxable in India. The High Court's observation highlighted the importance of assessing whether the assessee was taxed in Malaysia and the liability to pay tax on the foreign income.

Issue 3: Validity of AAC's Directions:
The Revenue contended that the AAC's directions to delete portions of the foreign income were not in line with the law or the High Court's observation. The Tribunal, however, found that the High Court did not address the issue on its merits and emphasized that the focus should be on whether the foreign income was taxable in India. The Tribunal upheld the AAC's order based on the Special Bench decision and the terms of the Double Taxation Avoidance Agreement.

Issue 4: Application of Special Bench Decision:
The Tribunal relied on the Special Bench decision in a similar case to support its decision to uphold the AAC's order. The Special Bench had clarified that foreign income would not be taxable in India if the firm had a permanent establishment abroad without control in India. The Tribunal found that the orders of the authorities lacked consideration of this aspect and, therefore, upheld the AAC's decision in line with the Special Bench's interpretation.

In conclusion, the Tribunal dismissed the appeal, affirming the AAC's decision to exclude the foreign income from the total income of the assessee based on the Special Bench's interpretation of the Double Taxation Avoidance Agreement and the taxability of foreign income in India.