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Commissioner of Income-tax Vs. Gokuldas Haridas and Others - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 432 of 1976
Judge
Reported in[1990]181ITR84(Bom); 1989MhLJ501
ActsIncome Tax Act, 1961 - Sections 91, 91(1) and 220(7)
AppellantCommissioner of Income-tax
RespondentGokuldas Haridas and Others
Excerpt:
.....of the tax due under that section as reduced by the amount of the double income-tax relief under section 91. it was the case of the assessees that the double income-tax relief under section 91 was required to be apportioned pro rata between the indian income and foreign income so that section 220(7) would operate in respect of the tax due on such foreign income as reduced by a fraction of the double income-tax relief under section 91 only......one of the two assessment years and the same should be given to the assessees proportionate to the indian income and foreign income ?(2) whether, on the facts and in the circumstances of the case and since no adjustments of refunds were made, the proportionate tax on the foreign income which is to be kept in abeyance in each one of the two years in respect of the three assessees is payable only when the prohibition or restriction from the foreign country is removed and that any refund due to the assessee in these two years by virtue of excess payments against indian income cannot be adjusted with reference to the tax kept in abeyance'2. the assessees are individuals. the assessment years involved are 1959-60 and 1960-61. they have been partners in the firm styled damodar anandji which.....
Judgment:

T.D. Sugla, J.

1. There are two questions of law in this reference. The questions are referred to this court by the Tribunal at the instance of the Department. The questions read thus :

'(1) Whether, on the facts and in the circumstances of the case, the double income-tax relief has first to be deducted from the total tax assessed on the assessees for each one of the two assessment years and the same should be given to the assessees proportionate to the Indian income and foreign income ?

(2) Whether, on the facts and in the circumstances of the case and since no adjustments of refunds were made, the proportionate tax on the foreign income which is to be kept in abeyance in each one of the two years in respect of the three assessees is payable only when the prohibition or restriction from the foreign country is removed and that any refund due to the assessee in these two years by virtue of excess payments against Indian income cannot be adjusted with reference to the tax kept in abeyance'

2. The assessees are individuals. The assessment years involved are 1959-60 and 1960-61. They have been partners in the firm styled Damodar Anandji which had income from business in India and also income arising or accruing in Portuguese East Africa. The assessments were made and demands were raised. The demands were subsequently revised but that aspect of the matter is not relevant for the purpose of deciding the issue before us.

3. There is no dispute that the laws of Portuguese East Africa prohibited the remittance of money to India and that the Income-tax Officer was bound not to treat the assessee as in default under section 220(7) of the Income-tax Act, 1961, in respect of that part of the tax which was due in respect of the income earned there until such a prohibition was removed. The question that arose for consideration before the departmental authorities as well as the Tribunal was whether the double income-tax relief allowed to the assessees under section 91 of the Income-tax Act was to be treated as exclusively pertaining to the tax due in respect of the foreign income so that the provision for not treating the assessee as in default under section 220(7) would operate in respect of the tax due under that section as reduced by the amount of the double income-tax relief under section 91. It was the case of the assessees that the double income-tax relief under section 91 was required to be apportioned pro rata between the Indian income and foreign income so that section 220(7) would operate in respect of the tax due on such foreign income as reduced by a fraction of the double income-tax relief under section 91 only. The claim was rejected by the departmental authorities. On further appeal, the Tribunal accepted the claim.

4. It is submitted before us by Dr. Balasubramanian, learned counsel for the Department, that the Tribunal did not appreciate the purport and the scope of section 91(1) of the Income-tax Act, 1961, correctly. The plain meaning of the provision was stated to be that the double income-tax relief was in respect of the foreign income and the provisions for not treating the assessees as in default under section 220(7) were also in respect of tax due on foreign income and that, therefore, the provisions of section 220(7) would operate in respect of tax due as reduced by the amount of double income-tax relief. In support of his contention, Dr. Balasubramanian placed reliance on the Madras High Court's decisions in M. M. Muthuwappa v. First Addl. ITO : [1952]21ITR344(Mad) and S. Manickam Chettiar v. ITO : [1976]104ITR283(Mad) .

5. Shri Toprani, learned counsel for the assessee, on the other hand, placed reliance on the appellate order of the Tribunal. It was pointed out that the tax is first computed on the assessee's total world income which included foreign income. The assessee was treated not to be in default with regard to the tax due on foreign income but this did not mean that the tax was payable by the assessee with regard to the Indian income treating the same as total world income. The rate applicable to the world income was first computed and it was only then that the tax on Indian income was worked out. Similarly, the tax due on foreign income was computed on the basis of the average rate of tax for the purpose of applying the provisions of section 220(7). According to Shri Toprani, when the assessee was paying tax on his Indian income at a higher rate on account of the tax being calculated at an average rate, double income-tax relief must also be computed on the average rate on the world income and not treated as solely relatable to foreign income.

6. In our opinion, the submissions made on behalf of the Revenue are without any merit. Section 220(7) admittedly provides that where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or prohibit or restrict the remittance of money to India, the Income-tax Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount which, by reason of such prohibition or restriction, cannot be brought into India, and he will continue to treat such an assessee as not in default in respect of that part of the tax until the prohibition or restriction is removed. There is no dispute that, in the first instance, tax is computed on the assessee's total world income and the tax due in respect of foreign income would not be the amount that represents the difference between the tax that will be payable by the assessee on his Indian income treating it as total world income and the tax payable on the total world income. It would be an amount computed by applying the average rate to which the assessee is liable to tax on his world income to the foreign income. To illustrate the point, assuming that the assessee's Indian income is Rs. 1,00,000 and foreign income is also Rs. 1,00,000, the provisions of section 220(7) would apply in respect of the foreign income. While the assessee will be paying tax in respect of the foreign income at Rs. 50,000 being the rate applicable to the slab between Rs. 1,00,000 and Rs. 2,00,000, the assessee would be treated not in default not in respect of the said Rs. 50,000 but in respect of Rs. 40,000 because that is the tax due on foreign income as a result of the application of the average rate of tax. Now, assuming further that the assessee gets double tax relief at 40%, the tax rate in the foreign country being higher than that, the assessee will get a relief of Rs. 40,000 only but the said Rs. 40,000 will not reduce the assessee's tax liability on its Indian income only because, if Indian income was total world income, the assessee would have been liable to pay a sum of Rs. 30,000 only. This being so, it is only proper that the amount of double income-tax relief, whether it is Rs. 40,000 or it is something less in the event of the tax rate abroad being lower than the rate applicable in India, is distributed proportionately between the Indian income and the foreign income. The two decisions relied upon by Dr. Balasubramanian are not applicable to the facts of this case at all for the reason that the issues in the two cases have been different from the one before us. Having regard to the plain meaning of section 91(1), we are inclined to hold that the Tribunal was justified in holding that the double income-tax relief should be apportioned proportionately between the foreign income and Indian income so as to arrive at the net tax due on foreign income in respect of which the assessee cannot be held to be in default within the meaning of section 220(7) of the Act.

7. The second question arises thus : The assessee had made payments of advance tax. The tax paid in advance and the tax deducted at source taken together was found to be in excess of the tax payable by the assessee in respect of his Indian income. For the tax due in respect of foreign income, the provisions of section 220(7) were operative. The assessee requested the department authorities for refund of the amount. The departmental authorities refused to refund the amounts saying that the purpose of section 220(7) was only to restrain the Income-tax Officer from adopting coercive methods for the recovery of tax due in respect of foreign income. If the assessee's money was already lying with the Income-tax Officer, he was certainly not obliged to refund the amount just because section 220(7) was operative in respect of tax due on foreign income. The departmental authorities did not accept the assessee's claim. However, the Tribunal accepted it and that is how the Department has come in reference before us.

8. Dr. Balasubramanian, for the Department, reiterated that the provisions of section 220(7) merely provided that the assessee would not be treated as an assessee in default as regards tax due in respect of foreign income falling within the purview of that section. To spell out from this provision an obligation on the part of the Income-tax Officer to refund the amount paid in excess of the tax payable by the assessee in respect of his Indian income was certainly not contemplated. In support, Dr. Balasubramanian placed reliance on the Madras High Court decisions in Muthuwappa (M. M.) v. First Addl. ITO : [1952]21ITR344(Mad) and Manickam Chettiar (S.) v. ITO : [1976]104ITR283(Mad) . Shri Toprani, for the assessee, strongly relied on the order of the Tribunal.

9. We have carefully gone through the provisions of section 220(7). The provision read thus :

'220(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the Income-tax Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed.'

10. It is evident that an assessee cannot be treated as an assessee in default in respect of that part of the tax which is due in respect of that amount of his income abroad which, by reason of restriction or prohibition, cannot be brought into India. It, of course, means that the Income-tax Officer shall not adopt coercive methods to collect such tax from the assessee. The question arises whether it would mean that if the Income-tax Officer has in his possession excess amounts paid by the assessee, the provision obliges him to refund such excess. In our view, the object of the provision is that if income cannot be brought into India for reasons such as restriction or prohibition regarding remission in the country in which the income has accrued, no tax payable thereon should be recovered from the assessee as the assessee cannot be treated as an assessee in default. The logical consequence of the provision is that if, in respect of the income other than income from that country, the amounts paid by the assessee are in excess of the tax due, the assessee should be entitled to refund. The cases relied upon by Dr. Balasubramanian do not, in any way, support his claim.

11. Having regard to the above discussion, both the questions are answered in the affirmative and in favour of the assessee. No order as to costs.


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