Double Taxation Avoidance Agreement between India and Ceylon. - Income Tax - 945/CBDT

INSTRUCTION NO. 945/CBDT Dated : April 5, 1976 It has come to notice that in the case of a person whose income included income from Ceylon (Sri Lanka) the ITO erroneously issued a demand notice under section 156 of the Income-tax Act, 1961, for the net demand due from the assessee after allowing the abatement likely to the due under the Double Taxation Avoidance Agreement between India and Ceylon though, at the time of assessment, the assessee had not produced the certificate of assessment. 2. Article III of the DTA Agreement between India and Ceylon provides that each country shall make assessment in the ordinary way under its own law, and where either country under the operation of its laws charges any income from the sources or categories of transactions specified in column 1 of the Schedule to the Agreement in excess of the amount calculated according to the percentages specified in columns II and III thereof, that country shall allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country. Article B of the Agreement provides, inter alia, that where at the time of assessment in one country, the tax attributable in the other country to such excess as referred to in Article III is not known the first country shall make a demand without allowing any abatement, but shall hold in abeyance for a period of one year (or such longer period as may be allowed by the ITO in his discretion) the collection of a portion of the demand equal to an amount estimated by him to be the abatement likely to be due. Further, if the assessee produces a certificate of assessment in the other country within the period mentioned above, the uncollected portion of the demand shall be adjusted against the abatement allowable under the Agreement. If no such certificate is produced within the aforesaid period, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith. 3. It is, therefore, that in a case where at the time of assessment in India, the assessee has not produced a certificate of assessment from the Ceylon tax authorities and the amount of tax attributable to the said 'excess' cannot, therefore, be known, the demand notice has to be issued for the entire demand, i.e., without allowing any abatement. However, the collection of a portion of the demand equal to an amount estimated by the ITO to be the abatement likely to be due shall be held in abeyance for a period of one year or such longer period as may be allowed by the ITO in accordance with Article V.