1973 (5) TMI 25 - HC - Income Tax

Whether, on the facts and in the circumstances of the case and on a proper construction of section 49A and Explanation (ii) to section 49D of the Indian Income-tax Act, 1922, the Tribunal was right in holding that the Income-tax Officer was not justified in deducting the amount of abatement allowable under the Agreement for Avoidance of Double Taxation with Pakistan from the amount of the Indian income-tax for the purpose of determination of the Indian rate of tax mentioned in clause (b) of section 49D(3) of the said Act ? - this question is answered in the affirmative and in favour of the assessee

Issues Involved:
1. Proper construction of Section 49A and Explanation (ii) to Section 49D of the Indian Income-tax Act, 1922.
2. Justification of the Income-tax Officer's deduction of the amount of abatement allowable under the Agreement for Avoidance of Double Taxation with Pakistan.

Issue-wise Detailed Analysis:

1. Proper Construction of Section 49A and Explanation (ii) to Section 49D of the Indian Income-tax Act, 1922:
The primary issue revolves around whether the Tribunal was correct in its interpretation that the Income-tax Officer was not justified in deducting the abatement amount under the Agreement for Avoidance of Double Taxation with Pakistan when calculating the Indian rate of tax under Section 49D(3)(b). The relevant statutory provisions include Section 49A, which authorizes agreements for either granting relief from double taxation or avoiding double taxation, and Explanation (ii) to Section 49D, which defines the "Indian rate of tax" as the rate determined after deduction of any relief due under other provisions of the Act but before deduction of any relief due under Section 49D.

2. Justification of the Income-tax Officer's Deduction:
The assessee, a tea company with operations in both India and East Pakistan, contended that the abatement granted under the double taxation agreement should not be considered as "relief due under the other provisions of the Act." The Income-tax Officer had deducted the abatement amount in calculating the Indian rate of tax, which the assessee challenged. The Appellate Assistant Commissioner upheld the Income-tax Officer's decision, but the Income-tax Appellate Tribunal reversed it, agreeing with the assessee that the abatement should not be deducted.

The Tribunal's decision was based on the distinction between "relief" and "abatement" as articulated in Section 49A. Relief under clause (a) of Section 49A pertains to situations where tax has been paid in both countries, whereas abatement under clause (b) is for avoiding double taxation before it occurs. The Tribunal observed that the abatement granted under the agreement with Pakistan did not amount to "relief due under the provisions of the Act" within the meaning of Explanation (ii) to Section 49D(3).

Analysis of Relevant Case Law:
The court referred to previous judgments, including the Division Bench's decision in Shell Co. of India Ltd. v. Commissioner of Income-tax, which distinguished between relief provided after tax has been paid in both countries and abatement aimed at avoiding double taxation before its imposition. The court also considered the Supreme Court's decision in Ramesh R. Saraiya v. Commissioner of Income-tax, although the specific controversy in that case was different.

Revenue's Arguments:
Counsel for the revenue argued that abatement is a form of relief and that the term "any relief" in Explanation (ii) should be interpreted broadly to include all forms of tax remission. They contended that since the abatement arises from an agreement authorized by the Act, it should be considered relief under the Act's provisions.

Court's Conclusion:
The court rejected the revenue's arguments, emphasizing that the Act does not directly provide for relief or abatement in cases of double taxation but merely authorizes the Central Government to enter into agreements for such purposes. The court maintained that the distinction between relief and abatement, as articulated in Section 49A, should be preserved. It concluded that the Tribunal was correct in holding that the abatement under the agreement with Pakistan should not be deducted when calculating the Indian rate of tax.

Final Judgment:
The court answered the reference question in the affirmative, in favor of the assessee, concluding that the Income-tax Officer was not justified in deducting the abatement amount under the Agreement for Avoidance of Double Taxation with Pakistan from the Indian income-tax for determining the Indian rate of tax. There was no order as to costs.

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