1. This is a reference under s 66(1) of the Indian I. T. Act, 1922 (hereinafter referred to as 'the Act of 1922'), made at the instance of the Commissioner of Income-tax. The assessment year, with which we are concerned in this reference, is the assessment year 1948-49 and the relevant accounting period is calendar year ended 31st December, 1947.
2. The question referred to us for our determination is as follows :
'Whether, on the facts and in the circumstances of the case, the double taxation relief under the Income-tax (Double Taxation Relief) (United Kingdom) RUles, 1948, is to be worked out on the amount of Rs. 15,93,557 or on the amount of Rs. 18,06,813?'
3. The facts giving rise to this reference, in so far as they are material for the appreciation of the controversy raised before us, are as follows :
The assessee is a company incorporated in the United Kingdom. The assessee derived its income from business in threads in India, Pakistan and the United Kingdom in the relevant previous year. The assessee's total income in India was determined at Rs. 18,76,536 for the relevant assessment year. This income included an income of Rs. 2,82,979, which was also assessed in the hands of the assessee in Pakistan. The total Indian income of the assessee assessed in the United Kingdom was Rs. 18,06,813 and the total income assessed in the hands of the assessee in the United Kingdom was Rs. 18,66,720. In respect of the Indian income assessed in the United Kingdom the assessee claimed the relief under the provisions of I. T. (Double Taxation Relief) (United Kingdom) Rules, 1948. The assessee thus claimed relief under theses rules in respect of an income of Rs. 18,06,813, being the Indian income assessed to taxation in the United Kingdom which was also assessed in India. The ITO allowed relief on the Indian income as reduced by Rs. 2,82,979, that is, on an income of Rs. 15,93,557, on the footing that the amount of Rs. 2,82,979 had also been assessed to tax in Pakistan and the assessee had got the abatement in tax in respect of the same. On an appeal by the assessee to the AAC, the AAC allowed the appeal and directed the ITO to proceed on the basis that the doubly taxed income was of Rs. 18,06,813 and to work out the double taxation relief on that footing. This decision was upheld by the Income-tax Appellate Tribunal on an appeal preferred to it by the Commissioner. It is this decision of the Tribunal which has given rise to this reference.
4. We may take note of the relevant provisions of law and rules at this stage. Section 49A of the said Act of 1922 empowered the Central Govt. to enter into agreements for granting of relief in respect of double taxation or for avoidance there of. The I. T. (Double Taxation Relief) (United Kingdom) Rules, 1948, were framed under the amended s. 49A. The said Rules are not applicable in respect of the years subsequent to 1948-49, but we are not concerned with that. We are concerned with the year 1948-49. An agreement for avoidance of double taxation was entered into in 1947 between India and Pakistan under s. 49AA of the said Act of 1922 which was then in force. Under that agreement, certain relief was given in respect of income assessed to double taxation in Pakistan as well as in India,. Rule 3 of the I. T. (Double Taxation Relief) (United Kingdom) Rule ss. 1948 (referred to hereinafter as 'the Double Taxation Relief Rules'), runs as follows :
'3. If any person who has paid by deduction under section 18 of the said Act or otherwise Indian Income-tax for the Year of assessment ending on the 31st day of March, 1949, of for any earlier year on any part of his income proves to the satisfaction of the Income-tax Officer that he has paid by deduction or otherwise United Kingdom income-tax that the rate at which he was entitled to, and has obtained, relief under the provisions of section 27 of the Finance Act, 1920, is less than the Indian rate of tax charged in respect of that part of his income he shall be entitled to a refund a sum calculated on that part of his income at a rate equal to the difference between the Indian rate of tax or the appropriate rate of United Kingdom income-tax, whichever is less, and the rate at which he was entitled to, and obtained, relief under that section.'
5. The contention of Mr. Joshi, learned counsel for the Revenue, is that in view of the fact that the assessee had already obtained some abatement in tax in respect of income of Rs. 2,82,979 on which it was assessed in India as well as in Pakistan, the assessee cannot be allowed to get any relief in respect of the said income under the Double Taxation Relief Rules. On the other hand, the contention of Mr. Shetty, learned counsel for the assessee, is that in view of the language of r. 3 of the said Double Taxation Relief Rules, the assessee is clearly entitled to relief in respect of Rs. 18,06,813 as the assessee was assessed to that income in India as well as in the United Kingdom, irrespective of the fact that the Indian income includes also a sum of Rs. 2,82,979 in respect of which some abatement in income-tax was granted on the ground that the said amount was also assessed to tax in Pakistan. As pointed out by the Tribunal, the short question which arises is as to what is the interpretation which can be given to the expression 'any part of his income' in the aforesaid r. 3 of the Double Taxation Relief Rules. there is no dispute that the Indian income of Rs. 18,06,813 was assessed also to tax in the United Kingdom, and in view of the plain language of r. 3, it does constitute a part of the assessee's income which was assessed to tax both in India and in the United Kingdom, with the result that the assessee would be entitled to relief in respect of double taxation on the said income, irrespective of the fact that the assessee had already obtained some abatement of tax on a part of the said income amounting to Rs. 2,82,979. In view of this, in our view, the Tribunal was right in the conclusion that actual relief will have to be worked out to the lower income of Rs. 18,06,813, which was the Indian income assessed to tax in the hands of the assessee in the United Kingdom.
6. In the result, the question referred to us is answered as follows :
The double taxation relief under the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948, is to be worked out on the amount of Rs. 18,06,813. The question is decided in favour of the assessee. The Commissioner to pay costs of the reference.