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Graham Trading Co. (India) Ltd. Vs. Commissioner of Income-tax, Bombay City- Iii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 44 of 1967
Judge
Reported in[1978]113ITR256(Bom)
ActsIncome-tax Act, 1922 - Sections 49A and 90; Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948 - Rule 2
AppellantGraham Trading Co. (India) Ltd.
RespondentCommissioner of Income-tax, Bombay City- Iii
Appellant AdvocateF.K. Kaka, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....in respect of super-tax on income taxed both in india and u.k. to be determined with reference to total income or income adjusted by excluding income referable to pakistan - assessee claimed relief in respect of income on which tax was paid in u.k. - provision of rule 2 (b) came up for consideration before taxing authorities - corresponding tax payable on total income to be taken before reducing it by amount of income assessed in pakistan to super-tax - held, double taxation relief in respect of super-tax on income taxed both in india and u.k. to be determined by dividing amount of gross super-tax in india without abatement on pakistan income by gross total income. - - 2,53,897 ?' 2. at the outset we may state that the question is not very happily worded and we will indicate..........of super-tax on income taxed both in india and in u.k. is to be determined with reference to the total income of rs. 3,73,117 or income as adjusted by excluding income of rs. 1,19,220 referable to pakistan of rs. 2,53,897 ?' 2. at the outset we may state that the question is not very happily worded and we will indicate clearly having regard to the provisions of law how the amount of indian super-tax for the purposes of assessment of the assessee is to be calculated. 3. the assessee is private limited company. for the assessment year 1946-47, for which the previous year is the year ended january 31, 1946, it was assessed in indian a total income of rs. 3,73,117. this amount of total income included income of rs. 1,72,373 earned in u.k. although the rest of the income was earned in the.....
Judgment:

Kantawala, C.J.

1. At the instance of the assessee, a limited company having income, inter alia, in India, United Kingdom and Pakistan the following question has been referred to us for our determination :

'Whether the double taxation relief in respect of super-tax on income taxed both in India and in U.K. is to be determined with reference to the total income of Rs. 3,73,117 or income as adjusted by excluding income of Rs. 1,19,220 referable to Pakistan of Rs. 2,53,897 ?'

2. At the outset we may state that the question is not very happily worded and we will indicate clearly having regard to the provisions of law how the amount of Indian super-tax for the purposes of assessment of the assessee is to be calculated.

3. The assessee is private limited company. For the assessment year 1946-47, for which the previous year is the year ended January 31, 1946, it was assessed in Indian a total income of Rs. 3,73,117. This amount of total income included income of Rs. 1,72,373 earned in U.K. Although the rest of the income was earned in the then undivided India, and the assessment year too began when India was undivided, it became necessary to consider separately income included therein, but referable to Pakistan which came into being later on. The income referable to Pakistan worked out at Rs. 1,19,220. That was because abatement of tax had to be given under the agreement for the avoidance of double taxation with Pakistan as per Notification No. 28 dated December 10, 1947, with reference thereto. As the remaining part of the total income was assessed to tax both in India and in U.K., the assessee was also eligible for double income-tax relief to that extent.

4. The Income-tax Officer made the assessment for the said year some time in March, 1961. During the course of the assessment proceedings the assessee had claimed abatement of tax in respect of the Pakistan income and that was duly granted. It also claimed double income-tax relief in respect of the income taxed both in Indian and in U.K. By his order dated September 27, 1963, the Income-tax Officer took the total income assessed in India at Rs. 3,73,117. The tax was ultimately determined at Rs. 95,211 (after giving abatement of tax of Rs. 44,707 on the income assessed in Pakistan). He further took the view that in U.K., the assessee was assessed on an income of Rs. 1,72,373 and it had already obtained relief in U.K. at 48 pies in a rupee in that respect. According to the Income-tax Officer the Indian rate of tax was arrived at as under :

5. The Indian rate of tax was determined by him by dividing the net tax in Indian by the total income including Pakistan income on which abatement was given, i.e., 95,211.87 ----48.00 3,73,117 pies in a rupee. In view of this figure the Income-tax Officer allowed the rate of relief in India at the rate of one pie in a rupee and accordingly granted relief of Rs. 897.77.

6. In an appeal by the assessee the Appellate Assistant Commissioner accepted the contention of the assessee. According to him the Indian income-tax had to be worked out after deduction of any relief due under the provisions of the Act. He further took the view that the total income has to be worked out after deducting any income exempted from tax under the provisions of the Act. Accordingly, the total tax paid by the assessee was to be determined at Rs. 95,211 after deducting Rs. 44,707 assessed and paid in Pakistan being the abatement of tax on the income assessed there Correspondingly the total income had to be determined at Rs. 2,53,897 after deducting from the total income of Rs. 3,73,117, the income in Pakistan of Rs. 1,19,220 on which no tax was payable as per rule 2(b) of the Notification No. 50, dated September 25,1948, issued under section 49A of the Indian Income-tax Act, 1922. According to him, the total income-tax paid in respect of the U.K. income worked out at 24 pies in a rupee as against one pie in a rupee as determined by the Income-tax Officer. To that extent the appeal was allowed.

7. The revenue being aggrieved by the order passed by the Appellate Assistant Commissioner preferred an appeal which was heard by the Tribunal. The contention of the Income-tax Officer before the Tribunal was that the relief as originally worked out by him was correct and the Appellate Assistant Commissioner was in error in granting higher relief. After considering the entire legal position the Tribunal took the view that the order of the Appellate Assistant Officer Commissioner was correct so far as the double income-tax relief in respect of income-tax was concerned but it was erroneous so far as the double income-tax relief in respect of super-tax was concerned. The Tribunal in the course of its order pointed out that the double income-tax relief in respect of income-tax both in India and U.K. was being regulated by section 49 of the Act. However, under section 108 of the Government of India Act, 1935, there was a bar to the introduction of any amendment affecting, inter alia, the granting of relief in respect of income taxed or taxable in U.K. When the two Dominions of India and Pakistan were formed, section 108 of the Government of India Act was deleted. So also be Act No. 10 of 1948 section 49 of the Indian Income-tax Act, 1922, was also deleted. Simultaneously, a notification was issued under section 49A of the Act to provide for such relief against double taxation of income both in India and in U.K. That Notification is No. 50 dated September 25, 1948. Substantially, it reproduced the provisions of section 49 of the Act. The tribunal examined the scheme of the notification for providing relief and considered the definition of the expression 'Indian rate of tax' given in clause 2(b) of the notification. The Tribunal confirmed the order of the Appellate Assistant Commissioner in so far as it related to determination of Indian Income-tax. In its order it observed :

'...... it will be clear that we have first to determine the Indian income-tax exclusive of super-tax. In arriving at the Indian income-tax deduction of any relief due to the assessee under any other provision of the Act, other than the double tax relief, will have to be given. Thus, after obtaining the net tax payable without taking into account the relief in respect of double taxation, one has to take the total income. The total income is subject to an adjustment in respect of income exempted from tax by or under the provisions of the Income-tax Act. In other words, the total income determined under the assessment is not final figure. It was to be reduced by any income included in the assessment by which is exempted from tax by or under the provisions of the Act......'

8. We need not go in detail as regards the finding of the Tribunal on the question of determination of the amount of Indian income-tax, because the Tribunal has confirmed the order of the Appellate Assistant Commissioner so far as the aspect of the matter is concerned and the revenue has not asked for reference against the said part of the order. The Tribunal pointed out that on a proper interpretation of clause 2(b) the claim of the assessee that the income from Pakistan should be deducted as exempted income is correct. It follows therefore, that the sum of Rs. 3,73,117 will have to be reduced by Rs. 1,19,220. It is the balance which will serve as the denominator. The denominator will thus be Rs. 2,53,897 and the numerator is Rs. 79,342.91 which is the income-tax on which relief is due for double taxation. This figure of income-tax is arrived at by deducting from Rs. 95,211.87 the amount of net super-tax. As no reference is asked for against this finding of the Tribunal it is unnecessary to point out the reasoning on which this conclusion was arrived at.

9. So far as the amount of Indian super-tax was concerned, the Tribunal observed in paragraph 12 of its order as under :

'As regards super-tax, clause 2(b) does not envisage any adjustment to the total income. It is not necessary for us to enquire into the reason behind the non-adjustment. Whatever be the reason, we have to give effect to it. Therefore, in calculating the Indian rate of super-tax the numerator is Rs. 15,868.46 and it will be divided by Rs. 3,73,117 which is the total income assessed and which is not eligible for any further adjustment. This follows from the language of clause 2(b) already extracted. It appears to us that the above will involve a slight difference to the calculation as made by the Appellate Assistant Commissioner. The order of the Appellate Assistant Commissioner will have to be modified only to that extent.'

10. In the reference application filed by the assessee it requested the Tribunal to raise five questions which are quoted in paragraph 7 of the statement of the case. However, the Tribunal deemed it fit to raise one question thinking it to be a comprehensive one as stated above.

11. Mr. Kaka on behalf of the assessee has submitted that while determining the Indian rate of tax to be paid by the assessee the amount of Indian super-tax has to be calculated as provided in clause 2(b) of the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948, published by Notification No. 50, dated September 25, 1948. He submitted that the view that was taken by the Appellate Assistant Commissioner was correct. According to his submission, the Indian rate of tax would be 72 pies in a rupee comprising of 60 pies in respect of Indian income-tax as defined in the notification and 12 pies in respect of Indian super-tax as therein defined. His submission was that if for calculation of the total income no deduction is made from the gross total income, then equally from the amount of Indian super-tax no deduction should be made as regards the abatement permissible for tax payable in Pakistan, but the gross Indian super-tax should be taken into account. Alternatively, his submission was that if deduction is made from the figure of total income, income assessed in Pakistan, then even while calculating the amount of Indian super-tax from the gross super-tax, payable qua the income in Pakistan should be deducted and the rule should be applied. If it is calculated in either way, then the amount of Indian super-tax payable by the assessee having regard to the provisions of rule 2(b) will be only 12 pies in a rupee as determined by the Appellate Assistant Commissioner. He submitted that the Tribunal was in error in permitting deduction qua the amount of Indian super-tax but not permitting the deduction while dividing the same by the total income. In short, his submission was that if deduction is to be made it should be made both from the numerator of Indian super-tax as well as from the denominator of the total income or it should not be done in either of the cases. Mr. Joshi on behalf of the revenue submitted that the Tribunal was right in interpreting rule 2(b) in the manner in which it was done by it. He submitted that no deduction whatsoever was required to be made from the total income because the definition of the expression 'Indian rate of tax' in clause 2(b) did not justify or permit any such deduction. Prior To April 1, 1953, section 49A in the Indian Income-tax Act, 1922, provided for relief in respect of Part B States and Dominion Income-tax, and section 49AA then existing provided for agreement for avoidance of double taxation in India or Pakistan or U.K. By section 49A the Central Government was empowered by notification in the official Gazette to make provisions for the granting of relief in respect of income on which have been paid income-tax (including super) under the Indian Income-tax Act and either Dominion income-tax in one or more countries or Burma income-tax while section 49AA empowered the Central Government to enter into an agreement with Pakistan or U.K. for avoidance of double taxation of income, profits and gains under the Indian Income-tax Act and under the corresponding law in force in Pakistan or U.K. That section also empowered the Central Government by notification in the Official Gazette to make such provision as may be necessary for implementing that agreement. In view of the provisions of section 49AA, an agreement for avoidance of double taxation in India and Pakistan was entered into an it was published in the Government Gazette under Notification No. 28 dated December 10, 1947 : See [1948] 16 ITR 4. In exercise of the powers conferred by section 49A of Indian Income-tax Act, 1922, the Central Government was pleased to make the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948, for the granting of relief in respect of income on which tax has been paid both in the provinces of India and in the United Kingdom. We are concerned with these rules and especially the definition of the expression 'Indian rate of tax' contained in rule 2(b) which is under :

'2(b) The expression 'Indian rate of tax' means the amount of Indian Income-tax exclusive of super-tax after dedication of any relief due to a claimant under other provisions of the said Act but before deduction of any relief under these rules, divided by his total income after deducting therefrom any income (including income from a share in an unregistered firm) exempted from tax by or under the provisions of the said Act, added to the amount of Indian super-tax before deduction of any relief due to the claimant under these rules divided by his total income.'

12. Since the assessee claimed relief in respect of income on which tax was paid in the U.K., the provisions of rule 2(b) came up for consideration before the taxing authorities. Under this clause, the Indian rate of tax comprises of two items : (1) the amount of Indian Income-tax calculated as therein provided, and (2) to that is added the amount of Indian super-tax calculated as therein provided. For calculating the amount of Indian Income-tax under this definition, the following procedure is to be followed or steps have to be taken.

1. The appropriate taxing authority is required to determine the amount of Indian Income-tax exclusive of super-tax;

2. Such income-tax has to be determined after deduction of any relief due to a claimant under other provisions of the Indian Income-tax Act but before deduction of any relief under the said rules;

3. The Indian income-tax so deducted is to be divided by the total income of the assessee after deducting therefrom any income (including income from a share in an unregistered firm) exempted from tax by or under the provisions of the Income-tax Act.

13. It was on this footing that the amount of Indian income-tax for calculating the Indian rate of tax was determined by both the Appellate Assistant Commissioner and Tribunal. The assessee's total Indian income was Rs. 3,73,117. Out of this income the amount of Rs. 1,19,290 was income referable to Pakistan. Thus, if the income referable to Pakistan was deducted the balance income was Rs. 2,53,897, i.e., the figure by which both the Appellate Assistant Commissioner and the Tribunal have divided the net income-tax in India. The net income-tax in India was determined at Rs. 79,342 after deducting a sum of Rs. 44,707 being the abatement of tax on income assessed in Pakistan. The Tribunal divided the net income-tax in India of Rs. 79,342.91 by the net income in India of Rs. 2,53,897 and arrived at the figure of the Indian income-tax 60 pies in a rupee. This finding of the tribunal has not been challenged by the revenue, because the revenue has not asked for any reference against the same.

14. The question referred to us merely relates to the double taxation relief in respect of super-tax. Having regard to the definition of the expression 'Indian rate of tax' given in rule 2(b), to the amount of Indian Income-tax as therein determined, has to be added the amount of Indian super-tax before deduction of any relief due to the claimant under these Rules divided by his total income. Strictly speaking, this being a statutory rule has to be interpreted having regard to the language used. Much of the controversy between the parties would have been avoided if regard be had to the nature of the deductions required to be made for determining the amount of Indian income-tax and the absence of any provision of deduction while determining the amount of Indian super-tax. For the purpose of calculating the amount of Indian income-tax, from the Indian income-tax a deduction for any relief due to the claimant under other provisions of the Act was to be made and that figure was to be divided by the total income after deducting therefrom any income exempted from tax by or under the provisions of the Act. It will be pertinent to notice that so far as the amount of Indian super-tax is concerned, there is no provision for deduction either from the amount of Indian super-tax or from the total income as indicated by the latter part of clause (b) of rule 2. If the tax paid on the income referable to Pakistan is omitted from consideration, then the balance tax was Rs. 95,211.87. This was composite figure of income-tax as well as super-tax. The figure of income-tax was Rs, 79,342.91 while the figure of super-tax was Rs, 15,868.46. When the language of a statutory provision is clear and unambiguous there is no scope for introducing words. On the contrary the very absence of the words which appear in the very first part of the clause in the latter part really indicates that it was the intention of the Government while framing this definition to make a distinct departure for calculating the amount of Indian income-tax as well as the amount of Indian super-tax. The addition that has to be m made for the amount of Indian super-tax has to be made by taking the gross amount of Indian super-tax divided by the gross total income. Having regard to the statement given by Mr. Kaka (the correctness of the figures has not been disputed by Mr. Joshi on behalf of the revenue), it is quite clear that the gross amount of Indian super-tax is Rs. 23,319.81. If this figure is divided by the total income of Rs. 3.73,117, the net amount is 12 pies in a rupee. It is this amount that is to be added to the amount of Indian income-tax as determined under the earlier part of the clause. In our opinion, the Tribunal was in error in merely emphasising the expression 'total income' while omitting from consideration the fact that even qua the amount of Indian super-tax there is no provision for deduction of any amount. If it is done in this fashion then the total Indian rate of tax qua the assessee will be the same as determined by the Appellate Assistant Commissioner. We may incidentally observe that if from the amount of Indian super-tax and the amount of total income abatement of super-tax on Pakistan income and the income referable to Pakistan were deducted, then the net result is the same. The Appellate Assistant Commissioner in his order has clearly pointed out that if the total income is taken before reducing it by the amount of income assessed in Pakistan it will be fair that the corresponding tax payable on total income should also be taken before reducing it by the a amount of income assessed in Pakistan it will be fair that the corresponding tax payable on total income should also be taken before reducing it by abatement of tax paid in Pakistan. That, in our opinion, qua the super-tax is the correct approach.

15. What is the effect of the agreement for avoidance of double taxation between India and Pakistan has been considered by the Supreme Court in the case of Ramesh R.Saraiya v. Commissioner of Income-tax : [1965]55ITR699(SC) . After reproducing the relevant clauses of this agreement, especially clauses IV and VI thereof, at page 705, the Supreme Court observed :

'It seems to us that the opening sentence of article IV of the agreement that each Dominion is entitled to make assessment in the ordinary way under its own laws clearly shows that each Dominion can make an assessment regardless of the agreement. But a restriction is imposed on each Dominion and the restriction is not on the power of assessment but on the liberty to retain the tax assessed.... But the Schedule does not 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 inserted only for the purpose of calculating the abatement to be allowed.'

16. So far as the present case is concerned, in our opinion, the controversy between the parties has to be decided upon correct interpretation of the definition of the expression 'Indian rate of tax' given in rule 2(b) of the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948. The language of the rule is clear and precise and is not capable of more than one interpretation and, in our opinion, as stated above, the view that was taken by the Appellate Assistant Commissioner was the correct one.

17. In our opinion, the question referred to us is answered as under :

The double taxation relief in respect of super-tax on income taxed both in India and in U.K. is to be determined by dividing the sum of Rs. 23,319.81, being the gross super-tax in India, i.e., without abatement on Pakistan income, by Rs. 3,73,117 being the gross total income,. This comes to 12 pies in a rupee.

18. The revenue shall pay the costs of the assessee.


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