Full Judgment Text
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PETITIONER:
C.A.P. ANDIAPPAN
Vs.
RESPONDENT:
C.I.T. MADRAS & ANR
DATE OF JUDGMENT09/08/1971
BENCH:
ACT:
Income-tax Act (11 of 1922). s. 49A-Agreement between India
and Ceylon, Art 3, item 8-Scope of-Relief under Ceylon
Income-tax Ordinance 1932 s. 45(2)-Abatement to which an
assessee resident in India and carrying on business in
Ceylon is entitled to.
HEADNOTE:
The appellant was a resident in India and was carrying on
business in Ceylon. His entire assessable income for the
years 1959-60 and 1960-61 was what he earned in Ceylon. He
was liable to be assessed :as a non-resident, but, in view
of s. 45(2) of the Ceylon Income-tax Ordinance, 1932, and of
the Agreement for ’Assessment for Relief or for Avoidance of
Double Taxation in India and Ceylon’ as provided in s. 49A
of the Indian Income tax Act, 1922, he was taxed as if he
was a resident in Ceylon and assessed to pay a smaller sum
as tax. The Income-tax authorities in India computed the
tax under the Indian law :and gave as abatement, the tax
payable by him in Ceylon as per the Agreement, and called
upon him to pay the balance.
On the questions: (1) whether he was not liable to be taxed
at all in India, and (2) if he was liable to be taxed in
India, what should have been the proper abatement, the High
Court confirmed the order of the Income-tax authorities.
In appeal to this Court,
HELD: (1) Article 3 of the Agreement begins with the
words ’Each ,country shall make an assessment in the
ordinary way under its own laws.’ Therefore, the appellant
was liable to be taxed in India. [91E-F]
(2) The Article read with item 8 of the Schedule to the
Agreement shows that from out of the amount ascertained
under the first part of the Article the tax payable by the
assessee in the other country in respect of the whole or
part of the amount brought to tax under the first part of
the Article, should be deducted. The word ’attributable’ in
the Article means ’payable’. In considering what taxes are
attributable to the tax laws of a particular country, one
has to take into consideration all the provisions of the
statutes levying tax, that is, for determining the tax ,due
from an assessee, one has not merely to look to the charging
section, but also to the provisions providing exemptions and
allowances. So read, the amount of tax attributable to the
Ceylonese law is that which ,was ultimately actually levied
on the assessee and not the leviable in Ceylon on a non-
resident. [92B-G]
Ramesh B. Saraiya v. C.I.T. Bombay 55 I.T.R. 699 (S.C.)
applied.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1689
and 1690 of 1968.
Appeals from the judgment and order dated January 19, 1967
of the Madras High Court in Writ Petitions Nos. 1030 and
1031 of 1963.
T A. Ramachandran, for the appellant (in both the appeals).
S. C. Manchanda, R. N. Sachthey, B. D. Sharma and S. P.
Nayar, for the respondents (in both the appeals).
The Judgment of the Court was delivered by
Hegde, J. These appeals by certificate arise from the
decision of the High Court of Madras in Writ Petitions Nos.
1030 and 1031 of 1963. Therein the petitioner Invoked the
extraordinary jurisdiction of the High Court under Article
226 of the Constitution to quash the orders of the
Respondents wherein he was not granted the abatement he
sought to obtain in the assessment years 1959-60 and 1960-61
The High Court came to the conclusion hat the appellant is
not entitled to any in ore abatement than that was given by
the authorities under the ’Assessment for Relief or for
Avoidance of double Taxation in India and Ceylon’ which will
be hereinafter referred to S the "agreement". It
accordingly dismissed the Writ Petitions but gave a
certificate under article 133(1)(c) of the Constitution of
India certifying that this is a fit case )r appeal to this
Court.
The appellant is a resident in this country. But he
carrying on business in Ceylon. During the assessment car
1959-60 he earned a gross income of Rs. 39,473/-id in the
assessment year 1’960-61 he earned a gross income of Rs.
39,047/-. He had only a house in India hose annual rental
value was Rs. 38,/-. The entire assessable income of his
was that what he earned in Ceylon. in his income in Ceylon,
he was taxed in a sum of Rs. 919/- for the assessment year
1959-60 and in a sum of s. 6,036/- for the assessment year
1960-61. For the ,.me income, in India, under the Indian
Jaw his tax was computed for the assessment year 1959-60 at
Rs. 10,282-62P id for the assessment year 1960-61 at Rs.
9,521 -35P
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The tax payable by him in Ceylon was given as abatement and
he was called upon to pay only the balance. The tax payable
by him in Ceylon as a non-resident would have been Rs.
9,889/- in the assessment year 1959-60 and Rs. 9,983/- in
the assessment year 1960-61. But in view of section 45(2)
of the Ceylon Income Tax ordinance 1932 and also in view of
the ’Agreement’ he was taxed as if he was a resident in
Ceylon.
Two questions arising for decision are whether he was not
liable to be taxed at all in India and if he was liable to
be taxed in India, what should have been the proper
abatement given to him.
Mr. Ramachandran appearing for the assessee contended
firstly that in view of the ’Agreement’ entered into between
India and Ceylon as provided in section 49C of the Indian
Income Tax Act, 1922 he was not liable to be taxed in India
at all. In the alternative, he contended’ that while
determining the tax payable by him in this country, the
department should have deducted the entire tax that he would
have had to pay had been taxed as a non-resident. For this
contention also he relies on the terms of the agreement
entered into between India and Ceylon. He does not dispute
the fact but for the agreement the assessee would have been
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liable to pay in this country a tax of Rs. 10,282 -62 p. in
the assessment year 1959-60 and Rs. 9,521 -35p. in the
assessment year 1960-61.
In order to consider the correctness of the contention,,
advanced by Mr. Ramachandran, we will now turn to the
relevant provisions of the ’Agreement’. That ’Agreement’
was notified in Modification SRO 456 dt. the 6th February,
1957. The portion of the notification which is relevant for
our present purposes is contained in Article 3 and column 8
of the Schedule to that agreement. Article 3 reads
"Each country shall make assessment in the
ordinary way under its own laws; 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 this Agreement
(hereinafter referred to as the Schedule) in
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excess of the amount calculated according to
the percentages specified in column 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."
SCHEDULE
Sources of income or nature of Percentage of income Remarks
transaction from which income is which each country
derived is entitled to charge
under the Agreement.
I II III IV
8. Any income derived from a source 100 per cent Nil by ,or
category of transactions not men- by the country the other.
tioned in any of the foregoing items in which
of the Schedule. the income
actually ac-
crues or
arises.
The first portion of article 3 says that "each country shall
make an assessment in the ordinary way under its own laws."
This means to begin with both India and Ceylon were required
to assess the assessee in accordance with law prevailing in
each of these countries. Thus far it is plain. From this
it is clear that first contention advanced on behalf of the
assessee has no basis. Hence it must fail. Now we come to
the second part of that article to the extent necessary for
determining the second contention. It reads :
" and where either country under the opera-
tion of its laws charges any income from the
sources or categories of transactions
specified in column 1 of the schedule to this
Agreement .... in excess of the amount
calculated according to the percentages
specified in columns 11 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."
The language employed in this part of the article ’is quite
confusing. That part of the article has to be read with the
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schedule. On a proper reading of that provision alongwith
the schedule, which means in the present case, item 8 of the
schedule, it appears to us that what it says is
From out of the amount ascertained under the first part of
the Article deduct the tax payable by the assessee in the
other country in respect of the whole or any portion of the
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amount brought to tax under the first part of article. The
word ’attributable’ in that Article merely means ’payable
Applying the principle mentioned above to the facts of the
present case, the following result is reached. The tax
payable under the Indian law as seen earlier was Rs.
10,282.62p. in the assessment year 1959-60. The tax payable
under the Ceylonese law in that year was Rs. 5,919/-. That
has to be deducted from the tax computed under the Indian
law. The balance alone is leviable. Similarly in the
assessment year 1960-61 the tax computed under the Indian
law is Rs. 9,521-35 p. and the tax levied under the
Ceylonese is being Rs. 6,036/-. In levying tax in this
country the tax payable in Ceylon has to be deducted. It
was urged by Mr. Ramchandran that what we have to take into
consideration is not the actual tax levied in Ceylon but the
tax leviable in Ceylon on a non-resident. He says that the
deduction given under section 45 (2) of the Ordinance
promulgated in Ceylon is only an allowance. Hence the same
does not form part of the actual taxation. We are unable to
accede to that contention. In considering what taxes are
attributable to the tax laws of a particular country, one
has to take into consideration all the provisions of the
statutes levying tax. In other words for determining the
tax due from an assessee, we have not merely to look to the
charging section but also to the provisions providing
exemptions and ’allowances. If so read, it is quite clear
that the amount of tax attributable to the Ceylonese law is
that which was ultimately levied on the assessee.
The agreement that was entered into between India and
Pakistan is similar in terms with the agreement, with which
we are concerned in these appeals, except that in article 4
therein which corresponds to article 3 in the agreement
before us in the place of the word ’attributable’ the word
’payable’ is used. But this change does not make any
difference in substance. Interpreting that
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agreement this Court in, Ramesh R. Saraiva v. Commissioner
of India Tax, Bombay City-11 held that article IV of the
Indo-Pakistan Agreement for the avoidance of Double Taxation
clearly shows that each Dominion can make an assessment in
the ordinary way regardless of the Agreement. The
restriction which is imposed on each Dominion under the
Agreement is not on the power of assessment but on the
liberty to retain the tax assessed. Nor does the Schedule-
to the Agreement limit the power of each Dominion to assess,
in the normal way all the income that is liable to taxation
under its laws. The Schedule has been appended only for the
purpose of calculating the abatement to be allowed by each
Dominion. The ratio of this decision, in our opinion,
governs the facts of this case.
We also do not see any reason for treating the appellant in
a manner different from other assessees, who are resident in
this country.
In the result these appeals fail and the same are dismissed.
No costs.
V.P.S. Appeals dismissed.
(1) 55 I.T.R. 699.
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