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

1. These are appeals by certificate from a common judgment of the Madras High Court rendered in three references under Section 66 (1) of the Income-tax Act, 1922 (hereinafter called the Act) pertaining to assessment years 1953-54, 1954-55 and 1955-56. In the reference relating to the first assessment year three questions (and) in respect of the last two, two questions were referred by the Tribunal. The three questions relating to the first referenceWhether on the facts and in the circumstances of the case, the Tribunal is right in its view that the Commissioner of Income-tax had jurisdiction to revise the order of refund?2. Whether on the facts and in the circumstances of the case, the Tribunal is right in its view that the order of refund under Section 48 read with Section 49-D is independent and distinct from the assessment order ?3. Whether on the facts and in the circumstances of the case, the Tribunal is right in confirming the computation of relief as modified by the Commissioner?In the reference relating to the last two assessment years, the questions were:1. Whether on the facts and in the circumstances of the case, the Tribunal is right in modifying the order of the Appellate Assistant Commissioner?2 Whether on the facts and in the circumstances of the case the Tribunal is right in its interpretation of SectionBefore the High Court the first question on the first reference was not pressed and therefore was answered against the assessee. The remaining two questions which were considered to be similar to the two questions in the other two references were also answered against the assessee. Before us the second question in the first reference was not pressed, as such substantially the third question in that reference and the first and second questions in the other two references which deal with the validity of the order of the Commissioner and the High Court need alone be considered in these appeals.3. The assessee who is now dead and is succeeded by legal representatives was doing money lending business in Malaya as well as in this country. He also owned rubber gardens abroad. In respect of the first assessment year 1953-54 the assessee declared his foreign income as Rupees 2,22,532 and showed a loss on business in India as Rs. 68,858 and income from other sources as Rs. 39.142/-. In the other two references it is not necessary to refer to the incomes earned by him abroad and in India except to say that the Appellate Assistant Commissioner allowed the appeal in part holding that the income from all the sources in India have to be considered together just as Income from all sources abroad must be considered together and in that view held that the net assessed income in India from Malaya is what has suffered double tax. What is to be determined in these appeals is on what basis should the double taxation relief be afforded to the assessee It will be sufficient if we take the first assessment as illustrative of the problem which is posed in these appeals.4. The Income-tax Officer allowed double taxation relief on a sum of Rs. 1,92,816/- by adding income from other sources to the foreign income and deducting from the total thus computed the loss of Rs. 68,858. The Commissioner in exercise of his powers under Section 48 read with Section 49-D however held that that computation was wrong because according to him the business loss of Rs. 68,858 incurred by the assessee can be set off only against the business profits of Rs. 2,22,532 earned in Malaya resulting in a business income of Rs. 1,53,674 being the only income from Malaya which can be considered to have suffered double taxation. In appeal against the order of the Commissioner, the Tribunal following the judgment in C.I.T. Madras v. Arunachalam Chettiar, (1963) 49 ITR 574 (Mad)   came to the conclusion that the expression "such doubly taxed income" can only indicate that it is that portion of the income on which tax in fact has been imposed and paid by the assessee that qualifies for double income relief. The High Court also was of the view that the relief granted by Section 49-D on such doubly taxed income has reference to the factual double incidence under two different jurisdictions of tax on identical amount of income, that is to say, an identical income on which two taxes have been imposed under the Indian jurisdiction and the other by a foreign authority.

Reasoning:
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.