MOOKERJEE, J. - This is a reference under Section 66(1) of the Indian Income-tax Act as amended by Section 92 of the Amending Act VII of 1939.
The question raised in this reference falls to be decided on the interpretation of sub-clause (a) of clause 1 of Part II of the India and Burma (Income-tax Relief) Order, 1936.
The Burma Oil Co. Ltd., is a company incorporated in England having business concern in Burma and a part of the business is transacted in India. The extent and value of business in respect of the assessment year 1937-38 in Burma, India and the United Kingdom will appear from the following agreed statements :-
Business income assessed in Burma.
Business income assessed in British India (78.8% of business income in Burma).
Business income assessed in the United Kingdom Pounds 2,270,508 (78.8% of which is Pounds 1,793,908); converted into rupees it is.
The assessee company claimed triple income-tax relief under the second part of sub-clause (b) of clause 1 of Part II of the India and Burma (Income-tax Relief) Order, 1936, in respect of the assessment year 1937-38. The triple income-tax relief claimed was in respect of Rs. 2,37, 81,974. This amount, from the admitted figures, was subject to taxation in all the three countries. Under sub-clause (b) of clause 1 relief was granted on the amount claimed as stated above.
Subsequently, the assessee has claimed relief under sub-clause (a) of clause 1 of Part II of the 1936 Order in respect of double income-tax on the different between business income as assessed in Burma and in India, i.e., Rs. 2,45,18,918 less Rs. 2,37,81,974, i.e., on Rs. 7,36,944.
According to the Income-tax Officer and Appellate Assistant Commissioner, the assessee was not entitled to the relief under sub-clause (a) as this was a case in which sub-clause (b) was applicable and had been given effect to or, in other words, the view expressed was that the two sub-clause were mutually exclusive. On an appeal by the assessee, the Appellate Tribunal allowed the relief as claimed by the assessee. Hence this reference on behalf of the Commissioner of income-tax, Calcutta.
Clause 1 of Part II of the India and Burma (Income-tax Relief) Order, 1936, is in the following terms :-
'1. If any person who has paid Indian income-tax for any year on any parent of his income proves to the satisfaction of the Income-tax Officer that he has paid for that year Burman Income-tax, or Burman income-tax and United Kingdom income-tax, in respect of that part of his income, he shall be entitled to a refund of Indian tax calculated on that part of his income at the appropriate rate of relief.
In this paragraph 'appropriate rate of relief' means -
(a) in relation to income-taxed in India and Burma and not in the United Kingdom, a rate bearing to the Indian rate of tax or the Burman rate of tax whichever is that lower, the same proportion as the Indian rate of tax bears to the sum of the Indian rate of tax and the Burman rate of tax;
(b) in relation to income-taxed in India, Burman and the United Kingdom, a rate bearing to the difference between the total rate at which he was entitled to, and obtained, relief in the United Kingdom under Section twenty-seven of the Finance Act, 1920, in respect of that income, and the sum of the two lowest of the three rates of tax the same proportion as the Indian rate of tax bears to the sum of the Indian rate of the tax and the Burman rate of tax.'
The point of the difference between the assessee and the Revenue authorities arises on the interpretation to be put on the word 'part' appearing in 'part of his income' in the first part of the sentence of clause 1 an 'in respect of that part of his income' appearing towards the end of paragraph 1 of the same clause. The word 'part' may be interpreted with reference to -
(1) the source from which income is derived, or
(2) the part of the income derived from the same source, or
(3) the part of the whole income.
On behalf of the Revenue authorities it is urged that income-tax is one and indivisible but for granting relief there are words of severance which refer only to the source. The source refers to so many compartments of income. Thus income from business having been assessed to tax in British India, Burma and the United Kingdom, relief has already been granted and it is not permissible for the assessee to claim relief once again on the plea that he has paid Indian Income-tax as also the Burman income-tax. On the other hand, it is claimed on behalf of the assessee that he has got relief in respect of that portion of the income which had been assessed at all the three places at the same time but, for the portion of the income which had been assessed not at all the three places but only in India and Burma he is entitled to relief. Assessment in this case is under the major head 'business or profession' and without going into the detailed sources it may be stated that (sic) that portion of the income on which he has been assessed twice may be determined and ascertained. No precedent has been placed before us where relief having once been granted on the ground of treble taxation an application was made in the same case for relief against double taxation. The absence of any such instance is no ground for throwing out of the application if the provisions of the Indian and Burman (Income-tax Relief) Order do not stand in the way. The language used in clause 1 has no such restricted meaning. However, the foundation of the Order is to afford relief to assessees when the same income is made liable for taxation in more than country. This particular piece of legislation is in consonance with the decisions arrived at in various double taxation relief conventions held different parts of the world. In my view clause 1 makes provision for affording relief in both cases where an assessee is made liable on the same income in more than one country. We, therefore, overrule the objection that once relief is granted for the assessment made in three countries, a subsequent application for additional relief on the ground of double assessment, for which no relief had been afforded previously, is not maintainable.
With regard to the question about the interpretation of the clause 'part of income' reliance has been placed by both the parties on the decision of the House of Lords in Assam Railways & Trading Co. Ltd. v. Commissioner of Inland Revenue. To appreciate property the effect and significance of the observations in the English case it is only meet and proper to state the relevant provisions of the English Statute. Finance Act, 1920, Section 27, sub-section (1), as amended by the Fiance Act, 1927, Section 46 and Schedule V, Part II, Section 2(1), provides :-
'If any person who has paid, by deduction or otherwise, or is liable to pay United Kingdom income-tax for any year of assessment on any party of his income proves to the satisfaction of the Special Commissioners that the has paid Dominion income-tax for that year in respect of the same part of his income, he shall be entitled to relief from United Kingdom income-tax paid or payable by him on that part of his income at a rate thereon to be determined as follows :-
(a) if the Dominion rate of the tax does not exceed one-half of the appropriate rate of United Kingdom income-tax, the rate at which relief is to be given shall be the Dominion rate of the tax :
(b) in any other case the rate at which relief to be given shall be one-half of the appropriate rate of United Kingdom income-tax.'
It will be noticed that the relevant clause in clause 1 of Part II of the India and Burma (Income-tax Relief) Order is almost in terms similar to the first proportion of the provisions of Section 27, sub-section (1), of the Finance Act, 1920.
It fell to be decided in the decision above referred to as to what was meant by the expression 'part of income'. The facts of that case may be shortly stated. The Assam Railways and Trading Company Limited was incorporated in England and carried on business in India and was assessed to income-tax both in India and in the United Kingdom. A portion of the income of the company arose from carrying on cultivation and managing a tea garden in Assam. The company had also issued certain debenture stocks. The whole of the companys income, Pound 186,750, was made liable to income-tax in the United Kingdom while neither he amount paid as interest on the debenture stocks nor the profits which were received from the tea garden were made liable for the Indian income-tax and the amount on which there Indian tax was levied was on 129,365. The question raised was whether the assessee were entitled, as contended for by them, to relief under the relevant section in respect of the whole of their business income brought into charge in India or, as the Attorney-General contended, only in respect of so much of so much of the income as had been or would be charged to income-tax there. Lord Blanesburgh frankly conceded that the more the question raised in the appeal was considered the grater was the difficulty it presented, but he thought that the word 'part' as used in the section 'does.... point to the source from which the income is derived; the part and the same part being brought in the section into relation with each other by their identity of source. The word appears to me to denote what may be described as a compartment of the assessees total income.... it is not, I think, unfavourable to the appellants contention that, in order to entitle an assessee to relief, it is in terms enough that he has paid Dominion income-tax in respect of that the same compartment of his income. These words may be significant when it is seen that, while by the section it is not pre-supposed that the effective compartment must correspond in amount to the United Kingdom counterpart, rather the reverse, yet the extent of relief is, so far as words are concerned expressed to be invariable. It is always relief at a prescribed rate from United Kingdom income-tax paid or payable by him on that part of his income. That is, may it not be said, from the whole of that tax'. The above considerations weighed with the noble Lord to decide the issue accordingly but he further stated that such considerations 'are not to my mind final, nor do they, I think, outweigh the reasoning which leads to the conclusion that the section in every case where it has to be applied is really directed against a charge pro tenet of the double income-tax upon any portion of any compartment of the assessees total income and that there is no sufficient indication in the language employed necessitating the conclusion that any further relief is contemplated or provided for.'
Lord Warrington concurred with the Lord Chancellor that the conclusion arrived at by the Court of Appeal below be approved and on the interpretation of the expression 'part of the incomes' observed (at page 454 of the Report) in the following terms :_
'On the question of the construction the contention of the appellants was that part of the income refers only to the source from which the income is derived. The source in this case was the Indian business of the company, and it was contended that, inasmuch as the whole of that income was taxed to the United Kingdom income-tax in the sum of 186,750, it is in respect of that sum that relief should be given.
'I cannot agree with this contention. The word part is not in any sense a word of art with a peculiar meaning derived from the subject matter in connection with which it is used. We are here dealing with a sum of money referred to as income. Part of a sum of money means in its ordinary significations so many Pounds, shillings and pence out of a larger amount. If the income is 100 a smaller sum, say 50, would properly be described as a part thereof.
'In the present case the part of his income on which the tax payer has paid tax in England is 186,750. In India he has paid tax on a smaller part numerically of the same income. To obtain relief he has to prove that he has paid Dominion tax on the same part of his income as that on which he paid United Kingdom tax. He can only prove this in respect of the smaller sum. I can see no reason why for the purpose of identification any other meaning should be given to the word part than the numerical meaning. Double taxation is not in terms mentioned in the section, but it is obvious that the object of the provision is to obtain pro tanto the avoidance of that result. The taxpayer has paid Dominion income-tax in respect of of his income; he is entitled to relief in respect of part of the same income and to no more.' According to Lord Warrington the case before him was a simple one although the Lord Chancellor thought just the other way. The observations previously made by him in the case of Rolls Royce Ltd. v. Short were explained as having been made with reference to the particular facts of that case and that they should not be taken as general ones applicable in all cases.
The principal judgment was the one to be found in the address by Lord Wright who agreed with the other noble Lords in the opinion given. Lord Wright expressed (pp. 459-460) himself in the following terms :-
'On the facts of the present case, I am of opinion that the appellants fail in their contention. The section requires that the taxpayer should prove(1) that he has paid tax in the United Kingdom for any year on a certain sum which is part of him income; in this connection I do not think that the word part is used to exclude the whole, but merely to point to an ascertainable sum of income which is brought into question, (2) that he has paid tax in the Dominion in respect of the same part of his income for that year; here the words in respect of as contrasted with on would be in applicable to the same part of his income which becomes a separate taxable subject in the Dominion. The taxpayer then becomes entitled to relief. It seems clear that there must be a definite part of income brought into question, and that can only be expressed in a sum of money. As income ex vi termini must be expressed in a sum of money, the words the same part of his income must involve a comparison between two sums of money, which prove to be the same.'
'The contention of the appellants is to the contrary; it is said on their behalf that the words the same part of his income refer solely to what is called the source, and that identity of amount is immaterial and does not come into question except for the purpose of ascertaining the rate of tax to be allowed for. I cannot agree with this argument. 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'.
We have no doubt that the reasons as gives above by the Law Lords for rejecting the contention of the Revenue authorities that 'part of income' has to be interpreted with reference to the source only are equally applicable in the case now before us.
The question of relief from double income-tax came up for further consideration in Inland Revenue Commissioner v. The National Mortgage & Agency Co. Lord Maugham, L.C., agreed with the observations by Romer, L.J., of the Court of Appeal 'that the word income in the section does not mean the real income, but the statutory or national income by means of which the tax is calculated. That if this statutory income in the Dominion is Pound A, and in the United Kingdom the statutory income from the see source is (A+B), relief will be given in respect of Pound A. That an analysis of the two statutory incomes for the purpose of comparing, for example, the respective allowances for repairs or depreciation, is inadmissible................. Nothing need be regarded except the two statutory incomes of the business, thanking care, of course, to see that neither includes income from any other source. Relief will then be given to be extent of the smaller of the two sums without enquiry into the reasons for the difference between them.' In the words of Lord Macmillanin Inland Revenue Commissioner v. Dalgety & Co., 'actual payment, not ultimate incidence, is the criterion both of the right of relief and of the right to deduction.'
Applying the test laid down by the House of Lords in the cases above referred to there is no doubt that the assessee is entitled to relief in respect of the income which suffered taxation assessment both in India and in Burma. The portion of the income in respect of which relief has already been granted on account of tax paid on the common portion in all the three countries must be deducted. The additional relief in respect of Rs. 7,36,944 under sub-clause (a) of clause 1 of Part II of the India and Burma (Income-tax Relief) Order, 1936, must be held to have been correctly decided by the Tribunal. The question raised must, therefore, be answered in the affirmative. The assessee will be entitled to the cost of the this hearing.
Hearing fee is assessed at 30 Gold Mohurs.
DAS, J. - I agree.
Reference answered in the, affirmative.