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TMI Blog1982 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... e in total income of taxable in India. However, a conflict arose in the Tribunal as to whether such Malaysian income is includible for rate purpose or not. That is how these appeals came to be heard by a Special Bench. 2. In the appeal of the assessee for the assessment year 1977-78, the assessee had business profits (share income) and property income from Malaysia. The assessee appealed only against the business income. The Commissioner (Appeals) held that the foreign income is includible only for rate purposes, The department appeal against the exclusion from assessment has been already dismissed. The appeal of the assessee is against the inclusion for rate purposes. 3. In the departmental appeal for the assessment year 1978-79, the ITO treated the foreign income as income from rubber estate. He held that the assessee is resident in India and as control is exercised from India, the income is taxable in India. The Commissioner (Appeals) held that unless the Malaysian enterprise carries on business in India, its profits in Malaysia cannot be taxed in India. Hence, the departmental appeals for inclusion in assessment or in any event for rate purposes. The departmental grounds disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement what is done is only that the exclusive right to tax income arising or accruing in Malaysia by the Government of India is agreed to be diluted and Malaysia is also given the right to tax the income of the Indian resident under certain circumstances. He clarified that the grant of a right to Malaysia to tax, did not whittle down the right of the Government of India to tax the same income. The standing counsel also argued further that the agreement entered into by virtue of section 90 of the Act, is not only for avoidance of double taxation but also for prevention of fiscal evasion with respect to taxes on income which prevention can be achieved only by retention by the Government of India of powers of inclusion of Malaysian income in the total income provided under section 5. The standing counsel concluded by stating that the Income-tax Act continues to govern the taxation in India except where provisions to the contrary are made in the agreement itself and that there are no such contrary provision in the agreement. Shri Srinivasan, counsel for the assessee, argued that the relevant article like article 6, article 7, etc., are provisions to the contrary and that, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5 of that Act continues to govern the taxation in India except where provision to the contrary is made in the agreement itself and that the agreement contains no such contrary provisions. 7. As regards the property income article 6 provides that income from immovable properties may be taxed in the contracting State in which such property is situated. In this case, the immovable properties admittedly is situate in Malaysia. So, article 6 empowers Malaysia to tax the income from those properties, Considering that the object of the agreement is avoidance of double taxation and not relief from double taxation which well-known expression, does not find a place in the preamble, the necessary interpretation should be that it is only Malaysia, that can levy the tax. If India can also levy tax, it will only frustrate the object of avoidance of double taxation with which the agreement is made. Even without the agreement, Malaysia can tax the property income which arises in Malaysia to the assessee who will be a non-resident as far as Malaysia is concerned. So, the object cannot be to confer Malaysia with power to tax which power it already possesses. The object can only be to take away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits. So, article 7 is also a provision to the contrary. As regards interest income, article 12 provides that interest derived by a resident of one of the contracting States from the other contracting State may be taxed that other contracting State. So, that interest income by the same process of reasoning adopted for property income is taxable only by Malaysia. So, article 12 also is a provision to the contrary. So, we hold that the property income, business profits and interest income is assessable only in Malaysia. It is only Malaysia that can tax. The power of India is taken away. 9. A pertinent question now arises as to what then is the meaning of paragraphs 2 and 3 of article 22 which provide for double taxation relief. Though under the agreement each country is given the right to tax certain types of income, still by bona fide error of interpretation some assessees in jurisdiction of some authorities may run the risk of their income being doubly taxed. Such a contingency cannot be ruled out. Necessary provision has to be made to meet such a situation. So, what paragraphs 2 and 3 provide is only to meet such situation where the same income unauthorisedly gets doubly taxed i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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