SRINIVASAN J. - The question that is referred to this court is :
'Whether Rs. 72,742 is the doubly taxed income for purposes of the application of section 49D as held by the Tribunal and not Rs. 63,141 as contended by the Commissioner ?'
It is not disputed that the assessable income of the assessee in Malaya was the sum of Rs. 93,312 and the chargeable income thereof was Rs. 88,635. The income as computed for purposes of assessment in India for the assessment year 1952-53 was Rs. 88,966. On this amount after allowing for the abatement for non-remittance and deducting losses in the business at the headquarters in India and adding the property income and income from other sources in India, the total taxable income was computed to be Rs. 72,742. When the question of double income-tax relief was raised, the Income-tax Officer granted relief only to the extent of Rs. 63,141. This figure was arrived at taking into consideration the Malayan income subject to tax in India as Rs. 84,466 less the business loss at headquarters in India. In the appeal to the Tribunal, however, the Tribunal took the view that the whole of the amount of Rs. 72,742 should be regarded as income which had been subjected to tax both in Malayan and in India and that relief to that extent should be granted. On the application of the department under section 66(1) of the Act, the question set out above stands referred for the decision of this court.
It is not denied that factually only Rs. 63,141 would represent that part of the income which has been subjected to tax both under the Malayan and the Indian Income-tax law, under the head 'business profits.' But what has been contended for by the assessee is that the circumstance that any relief has been granted by the set-off or by computation under section 10 of the Act by allowing for the business loss that was incurred in India should also be taken as part of the amount on which tax had been imposed; that is to say, according to the assessee, the entire amount of Rs. 84,466 should be regarded as the income of the assessee which had been subjected to tax under the Indian Income-tax Act notwithstanding that a portion of it had been allowed by way of deduction in respect of loss incurred in business. The question is whether this contention can be accepted.
Learned counsel for the assessee relies on certain observations made by the judges in Assam Railways and Trading Co. Ltd. v. Commissioners of Inland Revenue. Though it is conceded by the learned counsel for the assessee that the final decision in that case is against his contention, he relies upon certain observations made by the learned judges, which according to him support the view, that it is not the computation under section 10 of the Indian Income-tax Act that is relevant for the purpose of determining what is the income that has been subjected to double taxation but that the source of the income is the essential point for consideration. While we may concede that some observations to this effect are found in the speeches of the several learned lords the result of this decision has, however, been that it is only that amount of income, the statutory income as it is stated, which has actually suffered tax that has to be taken into consideration for the purpose of determining whether that amount has suffered double taxation. There are passages in the judgment of lord Blanesburgh where the learned to the appellants contention. But, nevertheless, he came to the conclusion that while the word 'part' used in section 27 of the English Act might be taken to indicate the source that would not be determinative of the question of what amount had actually suffered double taxation. At page 538 Lord Wright also pointed out :
'No doubt questions of source, as it has been called, that is, such questions as where the income comes from, are essential to identify, so far as that aspect goes, what is taxed in the United Kingdom with what is taxed in the Dominion, but, in addition, the income itself, that is, the amount of money, must also be identified. I think the words the same part of his income are apt to include both elements of comparison and identification.'
Dealing in particular with that part of the income which had been excluded from taxation under the Dominion tax law, the learned judge observed :
'...... on the true view of the facts of the present case, certain definite parts of income which are taxed in the United Kingdom are excluded from taxation altogether in India, so that the element of double taxation does not exist at all in regard to those parts of the appellants income.'
The scope of the above decision in Assam Railways and Trading Co. Ltd. v. Commissioner of Inland Revenue was further explained in National Mortgage & Agency Company of New Zealand Ltd. v. Commissioner of Inland Revenue. Finlay J. observed in connection with the observations of Lord Blanesburgh :
'I think that Lord Blanesburgh undoubtedly there shows that he considers some further analysis necessary, that one has got, so to speak, to split up what he calls the compartments into portions and see which of those portions have in fact borne double tax.'
Dealing also with Lord Wrights speech in Assam Railways and Trading Co. Ltd. v. Commissioners of Inland Revenue, he emphasised the observations of that learned Lord :
'In other words, I think that, in such a case as this, where definite amounts are in question, paid means paid in fact and cannot be applied in truth to these definite amounts, which are simply in India deducted from the profits assessable, as not being liable to tax at all. Accordingly, on the facts of this case, I do not think it is correct to say that the appellants have paid in India tax on the whole sum of Pound 186,750 so as to able to claim relief on the whole.'
It is not necessary to refer to the further observations in either of these cases.
It is quite clear that the amount of income as statutorily computed for purposes of imposition of the tax has to be examined and the identity of the amount which has borne tax under both laws has to be established before any relief for double income-tax could be granted. Even according to section 27 of the English Act which gives greater scope for an argument of this kind the view was taken that it is only the smaller of the two sums in respect of which relief from double tax could be granted.
Coming to section 49D of the Indian Act it seems to us that no other conclusion is possible. Section 49D in terms specifies the nature or the sum which would be eligible for double income-tax relief, that is, the income which accrues or arises during the year without the taxable territories. In respect of this sum the assessee should have paid in the other country income-tax by deduction or otherwise under the law in force in that country. If the nature of the amount as specified above is established, then he becomes entitled to the deduction from the Indian Income-tax payable by him of a sum calculated on such double taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is lower. It seems to us, on a plain reading of the section, that the quantum of the income on which income-tax has actually been charged in the two countries is what has to be determined. The fact that before the imposition of the charge any part of the income is exempt from tax or excluded as an allowance cannot be taken to mean that the tax is charged on the whole of the amount including that part of it which had been either exempted or allowed. The expression 'such doubly taxed income' really purports to indicate that it is only that portion of the income on which tax has in fact been imposed and been paid by the assessee that is eligible for the double tax relief.
In this view of the section, coming to the facts of the case, the Malayan income as computed for the purposes of the Indian Income-tax Act is admittedly Rs. 84,466. In respect of it the loss in business at the headquarters came to Rs. 21,325. The income that is brought to charge in both countries is, therefore, only the sum of Rs. 63,141. For the purpose of arriving at this income, the income from other sources which was not subject to any Malayan tax has to be excluded from consideration. If that is so it follows that only a sum of Rs. 63,141 has borne tax both in Malaya and in India. It is only in respect of that sum that double taxation relief is available to the assessee.
It follows that the view taken by the Tribunal was erroneous. The question is answered in the negative and in favour of the department. The department will be entitled to its costs of this reference. Counsels fee Rs. 250.
Question answered in the negative.