S.H. Kapadia, J.
1. All the above four references have come to this court under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1971-72, 1972-73, 1973-74, 1978-79, 1980-81 and 1981-82. Since all the four references raise common questions on facts and law, they have been disposed of by this common judgment. For the sake of convenience, we have reproduced hereinbelow the facts in I. T. R. No. 712 of 1987.
Facts :
2. For the assessment year 1978-79, the Tribunal has referred to this court the following question under Section 256(1) of the Act.
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled for double income-tax relief under Section 91(1) in respect of income from Tanzania without adjusting the losses from Thailand Branch ?'
3. The assessee-The Bombay Burmah Trading Corporation Ltd.--had its business in India, Tanzania and Thailand. During the assessment year in question, the assessee suffered a loss from the Thailand branch. While computing the assessment, the Income-tax Officer adjusted the losses from the Thailand business in the income from Tanzania for the purposes of relief under Section 91(1) of the Act. The assessee claimed before the Income-tax Officer that the double income-tax relief under Section 91(1) should be allowed in respect of the income from Tanzania without adjusting the loss from the Thailand branch. This argument was rejected by the Income-tax Officer. Being aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), who accepted the contention of the assessee. Being aggrieved, the matter was carried in appeal to the Tribunal by the Department. The Tribunal took the view following its judgment of the earlier years that the DIT relief was admissible with reference to only that part of the total income of the assessee which has gone into the computation of the total income and consequently the losses incurred in the Thailand branch stood omitted. Being aggrieved, the Department has made the reference to this court under Section 256(1) of the Act.
Arguments :
4. Mr. R. V. Desai, learned senior counsel for the Department, contended before us that in the present case the Tribunal has erred in relying upon the judgment of the Supreme Court in K. V. AL. M. Ramanathan Chettiar v. CIT : [1973]88ITR169(SC) . He contended that the judgment has no application to the facts of the present case. He contended that under Section 91(1) of the Income-tax Act, while computing the total income of the assessee in India under the Income-tax Act, the foreign income was required to be taken into account. He contended that the short point which arises for consideration in this case was whether the foreign income is to be taken into account while computing the assessee's total income as net foreign income. He contended that the judgment of the Supreme Court in K. V. AL. M. Ramanathan Chettiar v. CIT : [1973]88ITR169(SC) , does not deal with this question. He contended that under Section 91(1), if an assessee has business branches all over the world and in the branch at Tanzania, if there is business income which is taxable in that country and if in the Thailand branch, there is a loss then, that loss should be set off against the business income in Tanzania and that net foreign income should be taken into account while computing the total income of the assessee in India. He contended that the assessee cannot ignore the losses incurred in the Thailand branch. That, those losses must be set off against the business income which has accrued to the assessee in Tanzania. He contended that in order to apply Section 91(1) computation of total income of the assessee is required to be made and while computing the total income of the assessee the net foreign income should be taken into account and in the circumstances, the assessee was not entitled to ignore the losses of the Thailand branch. In this connection, he relied upon the provisions of Section 72 of the Income-tax Act. He contended that for computation of income, it was necessary to aggregate the income of the assessee from various branches all over India. He relied upon Section 72 of the Income-tax Act and he contended that while computing the total income, the principle of carry forward and set off of business losses should be applied and, if so applied in this case, then the business losses of the Thailand branch should be set off against the business income of the branch at Tanzania and only the net foreign income should fall under Section 91(1) for the purposes of calculating the DIT relief.
5. Mr. Dastur, learned senior counsel appearing on behalf of the assessee, submitted that the principle of aggregation of income under Section 72 of the Act cannot apply to the provisions of Section 91(1) of the Act. He contended that the basis of the said relief was that there should be a double taxation of income. He contended that the entire scheme of sections 90 and 91 which comes under Chapter IX, shows that the relief is to be calculated country-wise and not on the basis of amalgamation of income from various countries. In this connection, he relied upon the provisions of Section 90 in support of his contention that the relief is to be calculated country-wise. He contended that sections 90 and 91 come under Chapter IX. They are parts of the same scheme. They indicate that the relief is to be calculated on the income accruing country-wise. Mr. Dastur, learned counsel for the assessee, gave examples to illustrate the working of Section 91(1). He contended that under Section 91(1), one has to compare the Indian rate of tax with the rate of tax of the foreign country. He contended that if the argument of the Department was to be accepted, then it would be impossible to ascertain the comparable rate of tax vis-a-vis the Indian rate of tax. He contended that even a bare reading of Section 91(1) analytically shows that the relief is to be calculated on the income arising in a particular country and that the loss is required to be ignored. He therefore contended that the above question be answered in the affirmative, i.e., in favour of the assessee and against the Department.
Findings :
6. In the present matter, we are concerned with the scope of Section 91(1) of the Act. The said section reads as follows :
'91. (1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under Section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall 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, or at the Indian rate of tax if both the rates are equal'.
7. Under Section 91(1) of the Act, any person who is resident of India proves that, in respect of his income outside India, he has paid in any country with which there is no agreement under Section 90, income-tax under the law in force in that country, then such person shall 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 lower or at the Indian rate of tax if both the rates are equal. Under Explanation (iii), the expression 'rate of tax of the said country' has been defined to mean income-tax paid in the said country in accordance with the corresponding law in force in that country. If one analyses Section 91(1) with the Explanation, it is clear that the scheme of the said section deals with granting of relief calculated on the income country-wise and not on the basis of aggregation or amalgamation of income of all foreign countries. Basically under Section 91(1), the expression 'such doubly taxed income' indicates that the phrase has reference to the tax which the foreign income bears when it is again subjected to tax by its inclusion in the computation of income under the Income-tax Act, 1961. Further, Section 91(1) shows that in the case of DIT relief to the resident, the relief is allowed at the Indian rate of tax or at the rate of tax of the other country whichever is less. Therefore, the relief under Section 91(1) is by way of reduction of tax by deducting the tax paid abroad on such doubly taxed income from tax payable in India. Under the circumstances, the scheme is clear. The relief can be worked out only if it is implemented country wise. If the argument of the Department is to be accepted then, it would be impossible to compare the rate of tax of the foreign country with the rate under the Indian Income-tax Act. In this connection, a few examples may be seen. Firstly, if income arises in a country where there is no tax, the assessee would not be entitled to DIT relief because, the basis of the said relief is that there should be double taxation. Secondly, if an assessee earns income in Tanzania, Sri Lanka, Argentina and suffers loss in Thailand and if different rates of tax operate in Sri Lanka, Tanzania and Argentina then, for the purposes of Section 91(1), it would be impossible to compare the average rate of tax of one of the three countries, viz., Sri Lanka, Tanzania and Argentina, with the Indian income-tax rate. Thirdly, take the case of Argentina itself. In Argentina, the average rate of tax varies with the income falling between Rs. 39,000-Rs.1,30,000 and Rs. 76,000--Rs. 4,00,000. If, the loss in Thailand is to be set off then, the net foreign income would come in the lower scale whereas, if one goes country-wise then the income will come in the higher scale. Therefore, in certain cases, the argument of the Department based on aggregation of income would result in defeating the scheme of Section 91(1). Lastly, in this particular case itself the order of the Income-tax Officer shows that income from dividend from Malaysia amounting to Rs. 55,25,000 is not included in view of the agreement between India and Malaysia. The working on page 24 of the paper book made by the Income-tax Officer shows that even the Income-tax Officer has proceeded to calculate the relief on country-wise basis and not on the basis of aggregation of income.
Conclusion :
8. We, therefore, answer the above question in the affirmative, i.e., in favour of the assessee and against the Department. Accordingly, all the above references are disposed of. No order as to costs.