Case: K. V. A. L. M. Ramanathan Chettiar By L.Rs Vs. Commissioner Of Income-Tax, Madras


Decision reasoning: 0[ds]15. In interpreting the amended Section 49-D where the assessee is entitled to the deduction from Indian income-tax payable by him under the Act, the tax paid in a foreign country are we to give the same meaning to the words "of a sum calculated on such doubly- taxed income" as that which has to be given to the words "in respect of the same income" occurring under the repealed S. 49-D"? In other words, is the phrase such doubly taxed income of similar import as the "same income". In our view the word "same" would connote that it is identical though in all cases it may not mean that. It may also mean not different. It frequently means of the kind or species or corresponding to and therefore the same income in the context would mean the same kind or species or identical income earned in a foreign country on which tax has been paid in that country, in respect of which relief is being claimed for being again subjected to tax under the Act. If the concession that was being given by the amendment for encouraging Indian residents to start business in foreign countries, was only to give relief at the full rate of Indian income-tax instead of half of such tax, all that was necessary was to delete the words "one half of" occurring in Sec. 49-D as it was prior to its amendment. But that is not what the legislature has done. It has re-drafted the entire section with a different emphasis and this advantage was also afforded unilaterally under sub-section (2) in relation to any income accruing or arising in U. K. and chargeable under the Act for the period specified therein. Apart from giving full relief at the Indian rate of tax or the rate of tax of the said country whichever is the lower the assessee has to satisfy certain prerequisites before his claim to double tax relief can be accepted. He must show (a) that he is a resident in the taxable territories in the year in which relief is claimed, (b) that in respect of his income on which relief is claimed that it had accrued or arisen to him without the taxable territories and (c) that he has paid in that country income-tax by deduction or otherwise under the law in force in that country. If he satisfies these requirements he will be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country whichever is the lower.The words "such doubly taxed income" can have reference to the tax which the foreign income bears once again as the burden of Indian Income-tax by its being included in the total income chargeable under Section 3 read with Section 2 (15) which defines it as the total amount of income, profits and gains referred to in sub-section (1) of Section 4 computed in the manner laid down in the Act. A reference to Section 4 (1) (b) (ii) would show that the income which accrues or arises to an assessee without the taxable territories during such year is to be included in the total income so that the income under any of the heads enumerated in Section 6 which have accrued or arisen to the assessee without the taxable territory and is subject to the tax under the law in force in that country, is included in his total income attracting the levy of charge under the Act. This would again be taxed under the Act and would therefore be doubly taxed income. Or, it could mean that the income from the same or similar head or source which accrued or arose to him outside the taxable territories during such year and upon which tax was paid by him, can be considered to be doubly taxed if under the head it is again chagreable to tax under the Act. In other words, is the criteria for determining an income as doubly taxed income, the head or source of income under the Act to be considered with the same head or source of income in respect of which tax was paid under the foreign law, or is the emphasis on the tax paid by deduction or otherwise under the law in force in a foreign country in respect of which relief is being given by reason of the inclusion of that income in the total income of the assessee which is again subjected to tax under the Act.16. In Arunachalam Chettiars case, (1963) 49 ITR 574 (Mad)   the Madras High Court gave a similar interpretation to Section 49-D as was given by the English cases to Sec.27 of the United Kingdom Finance Act, 1920 for holding that " 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 exigible for the double tax relief." The decision did not take into consideration the legislative history or the change in the language of the amended Section 49-D nor the concession which was sought to be given to encourage residents in India to earn income outside the taxable territories. We do not say that the question to be determined is easy to resolve and in this we are in distinguished company of Judges who have felt similar difficulties, but in our view, what commends to us most is that once it is recognised that the section we are interpreting does not make the basis of relief the tax paid on the income from the same head or source, as we have shown that the change in the language does not, then the relief to which an assessee would be entitled would be the amount of tax paid on the foreign income which by its inclusion in the total income once again bears tax under the Act. The word such in the phrase such doubly taxed income has reference to the foreign income which is again being subjected to tax by its inclusion in the computation of the income under the Act and not the same income under an identical head of income under the Act. The income from each head under Section 6 is not under the Act subjected to tax separately, unless the legislature has used words to indicate a comparison of similar incomes but it is the total income which is computed and assessed as such, in respect of which tax relief is given for the inclusion of the foreign income on which tax had been paid accordingly to the law in force in that country. The scheme of the Act is that although income is classified under different heads and the it income under each head is separately computed in accordance with the provisions dealing with that particular head of income, the income which is the subject-matter of tax under the Act is one income which is the total income. The income-tax is only one tax levied on the aggregate of the income classified and chargeable under the different heads; it is not a collection of distinct taxes levied separately on each head of income. In other words, assessment to income-tax is one whole and not group of assessments for different heads or items of income.In order, therefore, to decide whetherthe assessee is entitled to double taxation relief in respect of anythe consideration that the income has been derived under a particular head would not have much relevance. There is indeed nothing in the language of Section 49-D which either expressly or by necessary implication restricts the grant of double taxation relief to incomes under the same head. In this view, we discharge the answers given by the High Court, and answer them in the negative and in favour of the assessee.17. An application for intervention on behalf of the Indian Bank Madras has been filed as an identical question is stated to be pending before the income-tax authorities. Though we permitted the intervention the learned advocate did not urge any new argument.