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TMI Blog1972 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... heir entirety. It will be sufficient if I set out the material facts relating to the assessment year 1953-54. During the relevant previous year, the deceased-assessee who carried on business in Malaya and also owned rubber gardens abroad declared his foreign income as Rs. 2,22,532. He had been assessed in Malaya in respect of that income. As he was resident in India during the relevant previous year, that income must be considered as having accrued to him in India in view of section 4(1)(b)(ii) of the Act. During the relevant year, he was carrying on business in India also. In that business he suffered a loss of Rs. 68,858. In this country his income from other sources amounted to Rs. 39,142. It mainly consisted of income from property. In his assessment proceedings in this country, he claimed double taxation relief under section 49D. The Income-tax Officer added his income arising outside the taxable territories with his income from other sources in India (Rs. 2,22,532 + Rs. 39,142 = Rs. 2,61,674) and from that he deduct Rs. 68,658, the business loss suffered by him in India and taxed him on a total income of Rs. 1,92,816. The Commissioner revised that order. He came to the conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under that section, relief to be granted depends upon the terms of the concerned agreement. Now turning back to section 49D and analysing that provision, we find the, following ingredients: (1) The assessee in question must have been resident in the taxable territory in any year; (2) That some income must have or to him outside the taxable territory during that year; (3) In respect of that income he must have paid by deduction or otherwise tax under the law in force in the country in question; and (4) If he fulfils all the above conditions he will be entitled to deduction from the Indian income-tax payable by him of a sum calculated on, such doubly taxed income at the Indian rate of tax or the rate of tax of the said country whichever is lower. There is no dispute that the first three conditions enumerated above have been satisfied in the present case. The real question for decision is as to what is the scope of the expression " of a sum calculated on such doubly taxed income ". This expression involves two aspects, viz., (1) it exclusively relates to the income earned outside India (this is clear from the word " such "), and (2) it relates only to that part of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Malaya, though taxed in Malaya has not been taxed in this country. Out of that sum only a sum of Rs. 1,53,674 has been taxed in this country. The business loss in this country cannot be said to have been taxed in this country. A relief given does not amount to a taxation. To repeat, only that income which can be said to have been doubly taxed, is entitled to relief under section 49D. Counsel for the parties rightly conceded that the source of income is not a relevant consideration. What is material under section 49D is the income which is doubly taxed. If the entire tax paid by the assessee in a country outside India is to be deducted while computing his tax liability in this country, then there was no necessity for the legislature to enact section 49A. An agreement under that provision, at the highest, could have provided for the deduction from the tax payable in this country by an assessee, the tax paid by him in a foreign country. Anything more than that cannot be considered as relief from double taxation. It would amount to tax concession. It is equally unlikely that the relief given under an agreement entered into under section 49A can be less than the relief available und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roves to the satisfaction of the Special Commissioners that he has paid Dominion income-tax for that year in respect of the same part of his income, he shall be entitled to relief from United Kingdom income-tax paid or payable by him on that part of his income at a rate thereon to be determined as follows: (a) If the minion rate of tax does not exceed one-half of the appropriate rate of United Kingdom tax, the rate at which relief is to be given shall be the Dominion rate of tax; (b) In any other case the rate at which relief is to be given shall be one-half of the appropriate rate of United Kingdom tax. The English provision entitles an assessee to relief from double taxation in respect of that part of his income on which he has paid Dominion income-tax and he is also liable to pay income-tax in the United Kingdom in respect of that part. The income which is entitled to relief under that provision is " the same part of his income " which is liable to be taxed both in the United Kingdom as well as in the Dominion. That is exactly what is done under section 49D. Our Act instead of using the expression " the same part of his income " which is doubly taxed has used the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Commissioners that he has paid Dominion Income Tax for that year of assessment ' in respect of the same part of his income' as that on which he has paid United Kingdom Income Tax. And the third step is that if such proof is given, the taxpayer becomes entitled to relief from United Kingdom Income Tax on that part of his income ', that is, on that same part referred to previously on which he has paid United Kingdom Income Tax and Indian Tax. " Proceeding further, the Master of Rolls observed : " The fact of paying a tax in a Dominion does not induce relief. The basic condition is that a person has paid tax on his income over here--then, if some part of that income so charged and assessed to tax in the United Kingdom can be identified and proved to have paid Dominion tax, that same part which has suffered dual taxation can be relieved of the tax paid here, up to the measure of relief given by the section. " The decision which is more appropriate for our present purpose is that rendered in Assam Railways and Trading Co. Ltd. v. Commissioners of Inland Revenue. The relevant facts of that case are as follows : The assessee-company, which was incorporated and controlled i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to tax in Malaya. Next deduction given in India in respect of the interest on debenture loans was not taken into consideration while affording double taxation relief because that portion of the Indian income was not subjected to double taxation because of the relief given under the Indian Income-tax Act. Let us apply that principle to the facts of the present case. The amount deducted in this country as business loss (Rs. 58,858) was not subjected to double taxation. That amount was never taxed in this country. We should not mix up double taxation relief with tax concessions. The main judgment of the House of Lords in Assam Railways' case was delivered by Lord Wright. Analysing section 27 of the Finance Act, 1920, Lord Wright observed : The section requires that the taxpayer should prove: (1) that he has paid tax in the United Kingdom for any year on a certain sum which is part of his income; in this connection, I do not think that the word ' part ' is used to exclude the whole but merely to point to an ascertainable sum of income which is brought into question; (2) that he has paid tax in the Dominion ' in respect of ' the same part of his income for that year; here the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se cases ignoring the legal principles enunciated therein. In the result I dismiss these appeals. JAGANMOHAN REDDY J.--These are appeals by certificate from a common judgment of the Madras High Court rendered in three references under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter called the " Act "), pertaining to assessment years 1953-54, 1954-55 and 1955-56. In the reference relating to the first assessment year three questions, and in respect of the last two, two questions were referred by the Tribunal. The three questions relating to the first reference are : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in its view that the Commissioner of Income-tax had jurisdiction to revise the order of refund ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in its view that the order of refund under section 48 read with section 49D is independent and distinct from the assessment order ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in confirming the computation of relief as modified by the Commissioner?" In the reference relating to the last tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee can be set off only against the business profits of Rs. 2,22,532 earned in Malaya resulting in a business income of Rs. 1,53,674 being the only income from Malaya which can be considered to have suffered double taxation. In appeal against the order of the Commissioner, the Tribunal, following the judgment in Commissioner of Income- tax v. Arunachalam Chettiar, came to the conclusion that the expression " such doubly taxed income " can only indicate that it is that portion of the income on which tax in fact has been imposed and paid by the assessee that qualifies for double income-tax relief. The High Court also was of the view that the relief granted by section 49D on such doubly taxed income has reference to the factual double incidence under two different jurisdictions of tax on identical amount of income, that is to say, an identical income on which two taxes have been imposed under the Indian jurisdiction and the other by a foreign authority. It is clear that a decision in these appeals will depend on the construction of section 49D which bristles with difficulties and is not easy to resolve. A great deal would depend on the approach to the question and the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of tax charged in a country which did not provide for relief in respect of the British Indian Income-tax was granted under the said section introduced by the Indian Income-tax (Amendment) Act, 1939, in the Act of 1922. To this an Explanation was added by Amendment Act 23 of 1941 which makes it clear that the relief extends both to income-tax and to super-tax. Thereafter, a new section 49D was substituted by the Amendment Act, 1953, with effect from 1st April, 1952, and by the Finance Act, 1956, sub-sections (3) and (4) were inserted. Since the last two sub-sections deal with income of a resident in the taxable territories accruing or arising to him during that year in Pakistan they do not assume any relevance for the purposes of this case. We give below in juxtaposition section 49D as it was prior to the amendment in 1953 and that inserted by the 1953 Amendment Act: Prior to Amendment Act, 1953. After Amendment Act, 1953. " 49D. Relief in respect of tax charged in " 49D. (1) If any person who is resident country not providing for relief in respect of in the taxable territories in any year proves income-tax in the taxable forritories.--If any that, in respect of his income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of double taxation, by the whole amount of the income assessed in the said country; (iv) the expression ' income-tax in relation to any country ' includes any excess profits tax or business profits tax charged on the profits by the Government of that country and not by the Government of any part of that country or a local authority in that country." That section, as is obvious, grant double taxation relief in respect of taxes on income charged in any foreign country by deduction or otherwise under the law in force in that country. The object of the section is that the amount of Indian income-tax paid or the amount of tax paid in the foreign country whichever is the lower is allowed as a deduction from the tax payable under the Act on such doubly taxed income. The words " in respect of the same income " in the pre-amendment section and " such doubly taxed income " emphasised by us assume importance and will be considered in the context of the respective sections and the object with which they were enacted. The Tribunal thought that the business loss in India must first be set off wholly against the business profit earned in Malaya and the fact that this results in applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the Schedule to the Agreement. It was held on the terms of that article and the clause in the schedule that what was attributable to the Ceylon law was only that tax which was ultimately levied on the assessee and demanded, but he was not entitled to abatement of tax that he would have to pay before deduction of the allowance given by section 45(2) of the Ceylon Income Tax Ordinance, 1932. This case, therefore, does not help us in ascertaining what " doubly taxed income " is for the purpose of section 49D as it was decided on the terms of the provisions of the Ceylon law according to which tax was ultimately levied in respect of which relief was claimed. The other two English cases dealt with the interpretation of section 27 of the Finance Act, 1920. The amendment in 1927 was only in respect of the meaning of " appropriate rate in the United Kingdom Income Tax " which is not relevant for the present consideration. Section 27 of the Finance Act is as under: " (1) If any person who has paid by deduction or otherwise, or is liable to pay, United Kingdom income tax for any year of assessment on any part of his income proves to the satisfaction of the Special Commissioners tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct the rate from the English income-tax although that would be giving him back more tax than he has actually paid in India? " In the Court of Appeal, Pollock M.R. said, at page 70 : " The fact of paying a tax in a Dominion does not induce relief. The basic condition is that a person has paid tax, on his income over here then, if some part of that income so charged and assessed to tax in the United Kingdom can be identified and proved to have paid Dominion tax, that some part which has suffered dual taxation can be relieved of the tax paid here, up to the measure of relief given by the section." Warrington L.J. observed at pages 71-72 ; " Having regard to the different modes of assessment prevailing in England and India respectively, the profits of the Indian business chargeable in the two countries can never be identical in amount, and it is, therefore, clear that in separating from the entire income the part of the income to which section 27 is applicable, regard must be had to the source from which it is derived and not to its amount. In this case the part of the income to be considered is the profits of the Indian branch." In Assam Railways & Trading Company's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n see no reason why for the purpose of identification, any other meaning should be given to the word ' part ' than the numerical meaning. ' Double taxation ' is not in terms mentioned in the section, but it is obvious that the object of the provision is to obtain pro tanto the avoidance of that result. The taxpayer has paid Dominion income-tax in respect of pound x of his income; he is entitled to relief in respect of pound x part of the same income and to no more." Section 27 of the Finance Act and the earlier cases on the interpretation of that section were again considered by the House of Lords-a case not cited at the Bar--in Inland Revenue Commissioner v. National Mortgage and Agency Co. of New Zealand . It was again pointed out that the true construction and effect of section 27, a difficult section, had led to arguments and differences of opinion in the courts and had come more than once before the House of Lords. In that case it was ultimately held that when a company controlled in the United Kingdom carries on business in a Dominion the relief from the United Kingdom income-tax under section 27(1) in respect of that business is to be determined by ascertaining the assessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that the pound 33,609 of debenture interest has, both here and in New Zealand, been subjected, though under different schemes, to the full burden of income tax. " These cases show that, (1) the actual tax paid on the Dominion income statutorily determined would alone be considered for relief, (2) that the relief which under section 27 can be claimed is the statutory income of the Dominion, derived from the same source which has been taken into account in the United Kingdom from the same source. The word " source " has been differently understood by different law Lords but in effect, as Lord Wright observed in the Assam Railways' case, the words " the same part of his income " are apt to include both elements of comparison and identification. In our view, we can derive no benefit from these cases unless we hold that " such doubly taxed income," in section 49D as being equivalent to " the same part " of the assessee's income in section 27 or " in respect of the same income " in the notification under section 49A. It may be pointed out that section 49D prior to amendment in 1953 afforded relief calculated at half of the Indian income-tax on the income in question or half of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourage persons resident in India to establish branch business in foreign countries. As respects the income accruing or arising in the U. K. the Central Government is empowered to make this unilateral basis, of relief applicable, if necessary, for the assessment years 1949-50, 1950-51 and 1951-52." The Select Committee added the words " but before deduction of any relief due in the said country in respect of double taxation " in Explanation (iii) and also added Explanation (iv). In respect of these amendments it stated : " Apart from a clarificatory amendment in the proposed section 49D(2), Explanation (iii), the other amendment is to remove one source of hardship. Generally, the excess profits tax or the business profits tax would be allowed as a deduction in the foreign country in determining the income liable to income-tax in that country, but not so in India. Therefore, if the tax were not taken into account the combined relief on income liable to tax in India and in the foreign country would not be adequate." In interpreting the amended section 49D, where the assessee is entitled to the deduction from Indian income-tax payable by him under the Act, the tax paid in a forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax by its being included in the total income chargeable under section 3, read with section 2(15), which defines it as the total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in the Act. A reference to section 4(1)(b)(ii) would show that the income which accrues or arises to an assessee without the taxable territories during such year is to be included in the total income so that the income under any of the heads enumerated in section 6 which have accrued or arisen to the assessee without the taxable territory and is subject to the tax under the law in force in that country, is included in his total income attracting the levy of charge under the Act. This would again be taxed under the Act, and would, therefore, be doubly taxed income. Or, it could mean that the income from the same or similar head or source which accrued or arose to him outside the taxable territories during such year and upon which tax was paid by him, can be considered to be doubly taxed if under the head it is again chargeable to tax under the Act. In other words, is the criteria for determining an income as doubly taxed income, the head or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although income is classified under different heads and the income under each head is separately computed in accordance with the provisions dealing with that particular head of income, the income which is the subject-matter of tax under the Act is one income which is the total income. The income tax is only one tax levied on the aggregate of the income classified and chargeable under the different heads; it is not a collection of distinct taxes levied separately on each head of income. In other words, assessment to income-tax is one whole and not group of assessments for different heads or items of income. In order, therefore, to decide whether the assessee is entitled to double taxation relief in respect of any income, the consideration that the income has been delivered under a particular head would not have much relevance. There is indeed nothing in the language of section 49D Which either expressly or by necessary implication restricts the grant of double taxation relief to incomes under the same head. In this view, we discharge the answers given by the High Court, and answer them in the negative and in favour of the assessee. An application for intervention on behalf of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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