Case: O.A.P. Andiappan Vs. Commissioner of Income Tax, Madras &amp; Others

assessee would have been liable to pay in this country a tax of Rs. 10,282,62 p. in the assessment year 1959-60 and Rs. 9,521.35 p. in the assessment year 1960-61. 5. In order to consider the correctness of the contentions advanced by Mr. Ramachandran, we will now turn to the relevant provisions of the Agreement. That Agreement was notified in Notification SRO 456 dt. the 6th February, 1957. The portion of the notification which is relevant for our present purposes is contained in Article 3 and column 8 of the Schedule to that agreement. Article 3 reads : Each country shall make assessment in the ordinary way under its own laws; and where either country under the operation of its laws charges any income from the sources or categories of transactions specified in column 1 of the Schedule to this Agreement (hereinafter referred to as the Schedule) in excess of the amount calculated according to the percentages specified in columns II and III thereof, that country shall allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country. TABLE 8. Any income derived from a source or category of transactions not mentioned in any of the foregoing items of the Schedule.100 per cent by the country in which the income actually accrues or arises. Nil by the other. 6. The first portion of article 3 says that each country shall make an assessment in the ordinary way under its own laws. This means to begin with both India and Ceylon were required to assess the assessee in accordance with law prevailing in each of these countries. Thus far it is plain. From this it is clear that first contention advanced on behalf of the assessee has no basis. Hence it must fail. Now we come to the second part of that article to the extent necessary for determining the second contention. It reads : and where either country under the operation of its laws charges any income from the sources or categories of transaction specified in column I of the schedule to this Agreement.... in excess of the amount calculated according to the percentages specified in columns II and III thereof, that country shall allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country. The language employed in this part of the article is quite confusing. That part of the article has to be read with the schedule. On a proper reading of that provision along with the schedule which means in the present case, item 8 of the schedule, it appears to us that what it says is :- From out of the amount ascertained under the first part of the Article deduct the tax payable by the assessee in the other country in respect of the whole or any portion of the amount brought to tax under the first part of the article. The word attributable in that Article merely means payable. Applying the principles mentioned above to the facts of the present case, the following result is reached. The tax payable under the Indian law as seen earlier was Rs. 10,282.62 p. in the assessment year 1959-60. The tax payable under the Ceylonese law in that year was Rs. 5,919. That has to be deducted from the tax computed under the Indian law. The balance alone is leviable. Similarly in the assessment year 1960-61 the tax computed under the Indian Law is Rs. 9,521,35 p. and the tax levied under the Ceylonese is being Rs. 6,036/-. In levying tax in this country the tax payable in Ceylon has to be deducted. It was urged by Mr. Ramachandran that what we have to take into consideration is not the actual tax levied in Ceylon but the tax leviable in Ceylon on a non-resident. He says that the deduction given under section 45 (2) of the Ordinance promulgated in Ceylon is only an allowance. Hence the same does not form part of the actual taxation. We are unable to accede to that contention. In considering what taxes are attributable to the tax laws of a particular country, one has to take into consideration all the provisions of the statutes levying tax. In other words for determining the tax due from an assessee, we have not merely to look to the charging section but also to the provisions providing exemptions and allowances. If so read, it is quite clear that the amount of tax attributable to the Ceylonese law is that which was ultimately levied on the assessee. 7. The agreement that was entered into between India and Pakistan is similar in terms with the agreement, with which we are concerned n these appeals, except that in article 4 therein which corresponds to article 3 in the agreement before us in the place of the word attributable the word payable is used. But this change does not make any difference in substance. Interpreting that agreement this court in, Ramesh R. Saraiva v. Commr. of Income Tax, Bombay City-I, 55 ITR 699 = (AIR 1965 SC 1263 ) held that Article IV of the Indo-Pakistan Agreement for the avoidance of Double Taxation clearly shows that each Dominion can make an assessment in the ordinary way regardless of the agreement. The restriction which is imposed on each Dominion under the agreement is not on the power of assessment but on the liberty to retain the tax assessed. Nor does the Schedule to the Agreement 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 appended only for the purpose of calculating the abatement to be allowed by each Dominion. The ratio of this decision, in our opinion, governs the facts of this case. 8. We also do not see any reason, for treating the appellant in a manner different from other assessees, who are resident in this country.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. The first portion of article 3 says that each country shall make an assessment in the ordinary way under its own laws. This means to begin with both India and Ceylon were required to assess the assessee in accordance with law prevailing in each of these countries. Thus far it is plain. From this it is clear that first contention advanced on behalf of the assessee has no basis. Hence it must fail. Now we come to the second part of that article to the extent necessary for determining the second contentionThe language employed in this part of the article is quite confusing. That part of the article has to be read with the schedule. On a proper reading of that provision along with the schedule which means in the present case, item 8 of the schedule, it appears to us that what it says is :-7. The agreement that was entered into between India and Pakistan is similar in terms with the agreement, with which we are concerned n these appeals, except that in article 4 therein which corresponds to article 3 in the agreement before us in the place of the word attributable the word payable is used. But this change does not make any difference in substance8. We also do not see any reason, for treating the appellant in a manner different from other assessees, who are resident in this country.