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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 ..... t, 1922 (to be hereinafter referred to as the Act). I agree with him that there is considerable difficulty in interpreting that provision but that does not absolve this court from its duty of properly construing that provision. On a proper construction of that provision, I am of the opinion that the conclusion reached by the Commissioner, the Tribunal and the High Court is the proper one. The facts of the case are fully set out in the judgment of my learned brother Reddy J. It is needless to repeat those facts in their 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax of the said country, whichever is the lower. " (Emphasis supplied). Before analysing the ingredients of this provision, it is necessary to mention that section 49D gives relief to the extent mentioned in that section in respect of the income accruing or arising in countries outside India with which our country has no reciprocal agreement for relief or avoidance of double taxation. With the countries with which we have reciprocal agreements for the relief from double taxation, section 49A applies. In cases falling 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 taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's income from property and other sources amounting to a sum of Rs. 39,142 has not been doubly taxed. Hence, that income cannot enter into the calculation of doubly taxed income of the assessee as that income could not have been included in the return made by the assessee at Malaya. That is not an income earned by the assessee outside the territories of India. That being so in calculating the doubly taxed income, that component of the total income has to be kept apart. Further the entire business income of Rs. 2,22,532 earned in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Select Committee's Report relating to that provision do not throw any light in the matter of identification of the income which is entitled to double taxation relief. Section 49D, despite the difference in the language employed, in my opinion, is similar in scope to section 27 of the United Kingdom Finance Act, 1920. The relevant portion of that section reads as follows: " 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 arty part of his income proves 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not where he has the whole taxed doubly, which obviously cannot be intended." When the matter was taken up in appeal to the Court of Appeal Pollock M.R. set out the conditions on which the relief can be given under section 27. Those conditions, to put it in the words of the Master of Rolls, are : " First, it is the person who has paid the United Kingdom Income Tax by deduction or otherwise for any year of assessment on any part of his income who may claim relief. The second step is that that taxpayer must prove to the satisfaction of the 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 ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngland, (2) the interest on debenture that was give n deduction to in India, (3) the tea garden profits, and (4) the other income. There was no dispute that the income from the investments in England was not to be taken into consideration while determining the double taxation relief. This position was conceded by the assessee. If we apply the same ratio to the facts of the case before us, we have to exclude from consideration while determining the double taxation relief, the income of Rs. 39,142--an income exclusively earned in India and was not brought 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 Railw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India Ltd. Therein the court was called upon to interpret an agreement entered into under section 49A. In that case the court was not required to interpret the scope of section 49D. There is no doubt that some of the observations made in that case lend support to the arguments advanced on behalf of the assessee. In my opinion the learned judges of the High Court in that case did not bring out correctly the ratio of the decision in Assam Railways and Trading Co. and Rolls Royce's case B. They sought to distinguish those cases on the basis of the facts of those 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he double taxation relief be afforded to the assessee. It will be sufficient if we take the first assessment as illustrative of the problem which is posed in these appeals. The Income-tax Officer allowed double taxation relief on a sum of Rs. 1,92,816 by adding income from other sources to the foreign income and deducting from the total thus computed, the loss of Rs. 68,858. The Commissioner, in exercise of his powers under section 48 read with section 49D, however, held that that computation was wrong because according to him the business loss of Rs. 68,858 incurred by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld appear on the relevant provisions an assessee can claim double taxation relief if he can show that he has paid tax on the same income both in India and in the foreign country. In order to obtain the relief it was also necessary to show that the income must have been charged to tax in both countries. Where a resident of India earns income in a foreign country with which the Government of India has no arrangement for relief against or avoidance of double taxation, relief has been afforded to him under section 49D. We may point out that for the first time relief in respect 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 taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the provisions of this Act; (ii) the expression ' Indian rate of tax ' means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the other provisions of this Act but before deduction of any relief due under this section, by the total income ; (iii) the expression ' rate of tax of the said country ' means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws of the said country after deduction of all reliefs due, but before deduction of any relief due in country in respect 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. Short, that of the House of Lords in Assam Railways Trading Co. Ltd. v. Commissioners of Inland Revenue and the case of this court in O.A.P. Andiappan v. Commissioner of Income-tax 8 were cited. We may at once state that these decisions are rendered on the provisions which are not in pari materia with the provisions in section 49D. The case of this court in Andiappan was under section 49A where the question was, whether, the assessee was entitled to abatement in India under article III of the Agreement for Relief and Avoidance of Double Taxation in India and Ceylon read with item 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld by the Court of Appeal. Rowlatt J., at page 67, gave the reasons for disallowance thus: " Where the Indian income in the year of assessment calculated according to Indian methods is more than the Indian income calculated according to British methods, then he will only get relief calculated with reference to the amount of the English calculated income upon which he has paid English income-tax. Where the Indian income calculated according to the Indian method is less than the Indian income calculated for the United Kingdom income-tax in the United Kingdom method, will he be able conversely 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. ' Part ' of a sum of money means in its ordinary signification so many pounds, shillings and pence out of a larger amount. If the income is pound 100, a smaller sum say pound 50, would properly be described as a part thereof. In the present case the part of his income on which the taxpayer has paid tax in England is pound 186,750. In India he has paid tax on a smaller part numerically of the same income. To obtain relief he has to prove that he has paid Dominion tax on the same part of his income as that on which he paid United Kingdom tax. He can only prove this in respect of the smaller sum. I can 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by means of which tax is calculated; (2) that if this statutory income in the Dominion is pound A and in the United Kingdom the statutory income from the same source is pound (A+B) relief will be given in respect of pound A; (3) that an analysis of the two statutory incomes for the purpose of comparing for example the respective allowances for repairs or depreciation is inadmissible. Lord Macmillan pointed out at pages 554-555: " The principle of section 27 is that the same fund of income shall not bear the full burden of both the United Kingdom and Dominion income-tax, and in the present instance it is clear 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations unilaterally even to the United Kingdom. That Bill, as stated earlier, was subsequently enacted by the substitution of a new section 49D for the old one. The objects and reasons for the amendment of section 49D of the Act and clause 25 of the Amendment Bill of 1952 give the following reasons: " The provision as proposed to be amended secures that this unilateral relief will be increased from one-half to the abatement of tax at the full Indian rate or the full foreign rate of tax whichever is lower. This amendment implements the concession announced in a press note on the 20th May, 1950, and would encourage 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of his income on which relief is claimed that it had accrued or arisen to him without the taxable territories ; and (c) that he has paid in that country income-tax by deduction or otherwise under the law in force in that country. If he satisfies these requirements he will be entitled to the deduction from the Indian incometax 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 the lower. The words " such doubly taxed income " can have reference to the tax which the foreign income bears once again the burden of Indian income-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 taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the foreign income which is again being subjected to tax by its inclusion in the computation of the income under the Act and not the same income under an identical head of income under the Act. The income from each head under section 6 is not under the Act subjected to tax separately, unless the legislature has used words to indicate a comparison of similar incomes but it is the total income which is computed and assessed as such, in respect of which tax relief is given for the inclusion of the foreign income on which tax had been paid according to the law in force in that country. The scheme of the Act is that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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