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TMI Blog2001 (1) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to deduction under section 80-O of the Income-tax Act to the extent of 50 per cent of the income so received and brought to India. Accordingly on the balance amount tax was levied under the Income-tax Act. On the income subjected to tax in India and Singapore the assessee is entitled to Double Income-tax Relief in terms of the Agreement between the two countries on the amount of Singapore tax payable on the income subjected to tax in both countries, but not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. For the assessment year 1987-88 the assessee claimed double Income-tax relief on a sum of Rs. 7,58,918, as the tax payable under the Tax Laws of Singapore in respect of the royalty income calculated as under: Royalty income Rs. 18,97,295 Tax payable in India on royalty at the rate of 50 per cent Rs. 9,48,648 ------------- Tax payable in Singapore on royalty at the rate of 40 per cent Rs. 7,58,918 The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on which alone relief had to be worked out. Aggrieved with the orders passed by the first appellate authority the assessee has filed these appeals before the Tribunal. 5. Before us, Sri Vijayaraghavan, Advocate appearing on behalf of the assessee submitted that the Revenue authorities were not correct in holding that the assessee was entitled to relief under the Double Taxation Avoidance Agreement to the extent of the Singapore tax payable on the reduced amount of royalty after the deduction under section 80-O. The Ld. counsel pointed out that under the Singapore Tax Laws, no deduction was allowed on the royalty income and that the entire royalty amount was subjected to tax in that country at 40 per cent. Though under the Income-tax Act deduction was allowed under section 80-O on the royalty income, what was relevant to consider was the nature of the income and not the quantum as such that was the main contention of the Ld. counsel. Drawing our attention to the relevant provisions in the Double Taxation Agreement Sri Vijayaraghavan submitted that the expression "subjected to tax" used in Article 24 of the Agreement refers to the qualitative aspect rather than the quantitative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Double Taxation Avoidance Agreement that the appellate authority found that the assessee was entitled to double Income-tax relief on the net income from royalty after the deduction under section 80-O. It was the contention of the Ld. Sr. D.R. that though deduction under section 80-O was not allowable under the Singapore tax laws, under the Indian tax laws the assessee was allowed such deduction and only the balance amount after the deduction, was subjected to tax in India. According to Sri Goraknathan what is to be considered while working out the relief is, what is the income subjected to tax in both countries, and what is the amount of tax payable on the income tax in both countries. Referring to the assessment year 1987-88 the Ld. D.R. stated that there was no dispute on the fact that the assessee was in receipt of royalty of Rs. 18,97,295 from the foreign concern. That was subjected to tax in Singapore. According to him, what was subjected to tax in India was not Rs. 18,97,295, but only the net amount of Rs. 9,48,648, after the deduction under section 80-O. It was his contention that only that net amount could be considered as having been subjected to tax in both countries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent of India, in respect of income from sources within Singapore which has been subjected to tax both in India and Singapore, shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. (b) For the purposes of credit referred to in sub-paragraph (a) above, there shall be deemed to have been paid by the resident of India the amount of Singapore tax which would have been payable but for the deduction allowed in computing the assessable income, reduction of or exemption from tax under-" It can be seen from clause 2(a) that the amount for which credit can be given against the Indian tax payable is the amount of Singapore tax. It is the amount of the tax payable under the laws of Singapore in respect of income from sources within Singapore, which has been subjected to tax in India and Singapore. What is the income which has been subjected to tax in India and Singapore in the present case? There is no dispute that the income by way of royalty subjected to tax in Singapore was Rs. 18,97,295. In India out of the royalty amount on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was to be computed after deducting the extra amount of deduction, allowed to the assessee under section 35 of the Act. In that case the Tribunal was considering the meaning of the word 'income' as appearing in section 90(1)(a), and not the provisions of the Double Taxation Agreement with Singapore or Ceylon. As a matter of fact, the decision of the Tribunal related to the assessment years 1971-72 to 1976-77, whereas the Agreement between India Singapore came into force after January 18, 1982 only. 10. We are thus left with the question: What is the amount of Singapore tax payable by the assessee in respect of the income which has been subjected to tax in both countries? It is our considered view that the expression "subjected to tax" has a narrower meaning, and it refers to the amount of income on which tax has been levied. In the present case though "income chargeable to tax" in both countries was royalty, under the Indian Tax Laws the assessee was allowed deduction under section 80-O and tax was levied in India, on the net amount only. Hence only 50 per cent of the royalty on which tax was levied in India, could be considered as income subjected to tax in India. Even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt held that as the assessee had been granted deduction under section 80RRA, on 50 per cent of the remuneration from foreign employer, only balance amount was subjected to tax in India and so relief on double taxation was available only on 50 per cent of the remuneration. That was the view taken by the Rajasthan High Court also in CIT v. Dr. R.N. Jhanii [1990] 185 ITR 586. In that case the Court observed: "Section 91 cannot be construed in isolation, but with the other provisions of the Act. Accordingly it is only the tax already paid on that part of the foreign income under the Indian Income-tax which is required to be deducted for the purpose of giving relief from double taxation." The above decision was followed in the subsequent decision of the Rajasthan High Court in CITV. Dr. J.C Sharma [1990] 186 ITR 173. 13. True, the above decisions are concerned with the D.I.T. relief under section 90. The Ld. counsel for the assessee is correct that the expression used in section 91 is "such doubly taxed income" and not "income subjected to tax" in both countries as appearing in the Agreement with Singapore with which we are now concerned. We may mention here that in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardship would be caused to the assessee. It was submitted that by allowing first the credit towards Income-tax and then computing the Surtax liability based upon the reduced income-tax liability would amount to subjecting to Surtax the tax relief available under D.T.A. Agreement. According to Sri Vijayaraghavan such computation would be against the basic principle underlying the D.T.A. Agreement which was intended to avoid the hardship to taxpayers. 17. Sri Goraknathan, the Sr. D.R., in his counter argument emphasised the fact that in the D.T.A. Agreement under consideration, there was no provision enjoining that priority should be given to Surtax in the matter of set off of the credit on account of Singapore tax. He added that as income-tax is to be deducted from the chargeable profit for the purpose of levying Surtax, by not adjusting the D.T.A. relief against Income-tax, the correct liability would not be ascertained and then the computation of the Surtax liability would not be possible. 18. It is important to note that Surtax under the Companies (Profits) Surtax Act, 1964 can be computed only after determining the income-tax payable under the provisions of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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