This is a reference on the motion of the assessee by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax 1922. The question referred reads as follows :
'Whether, on the facts and in the circumstances of the case, the abatement of Rs. 704 only allowed to the assessee under article III of the agreement for relief from or avoidance of doubt taxation in India and Ceylon (in Notification S.R.O. 456 dated February 6, 1957) is correct in law ?'
The assessment year concerned is 1960-61 During the accounting period relevant to that assessment year, the twelve months ended on March 31, 1960, the assessees income from business in Ceylon was Rs. 18,765. The income-tax authorities in Ceylon assessed the said income under the Ceylon Income-tax Ordinance, 1932, granted the assessee the reliefs to which he was entitled under that Ordinance and fixed the amount of tax payable by him at Rs. 704. It is common ground that the said tax has been paid.
The answer to the question referred depends on article III of the agreement for relief from or the avoidance of doubt taxation of income between the Government of India and the Government of Ceylon. That agreement was entered into in pursuance of section 49A of Indian Income-tax Act, 1922, which provides that the Central Government may enter into an agreement :
(a) with the Government of any country outside India for the granting of relief in respect of income on which have been paid both income-tax (including super-tax) under this Act and income-tax in that to country, or
(b) with the Government of any country outside India for the avoidance of double taxation of income, profits and gains under this Act and under the corresponding law in force in that country;
and may, by notification in the official Gazette, make such provisions as may be necessary for implementing the agreement.
The notification on the subject is Notification No. S.R.O. 456, dated the 6th February, 1957. The notification in reprinted in Kangas Law and Practice of Income-tax, 4th edition, volume II, on pages 330 to 334.
Article III of the agreement - the article referred to in the question referred - reads as follows :
Each country shall make assessment in the ordinary way under is 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 I of the Schedule of 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.'
The portion of the Schedule which is relevant to the case - there is no dispute on this point - is in the following terms :
Source of income or nature of transaction from which income is derived.
Percentage of income which each country is entitled to charge under the Agreement
Remarks
I
II
III
IV
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 country in which the income actually accrues or arises
Nil by the other
A reading of article III of agreement and the relevant portion of the Schedule makes it quite clear that what has to be done in a case like the one before us can be summed up as follows :
(1) Ascertain the income which has been assessed both under the the Ceylon Income-tax Ordinance, 1932, and the Indian Income-tax Act, 1922.
In this case the amount of that income is Rs. 18,765.
(2) Ascertain the portion of that amount - of Rs. 18,765 -which is in excess of the amount calculated according to the percentage specified in column III of the Schedule.
The percentage specified in column III for the income in this case is 'Nil' and so the excess is the whole of the amount of Rs. 18,765.
(3) Ascertain the tax payable on the excess - Rs. 18,765 -under the Ceylon Income-tax Ordinance, 1932, and the Indian Income-tax Act, 1922, and allow an abatement equal to the lower of the two amounts of tax.
In this case the Ceylon tax is Rs. 704 and the Indian tax is Rs. 1,876.50. The abatement that should be allowed, therefore, is Rs. 704.
An abatement to the extent of Rs. 704 has been allowed. the assessee cannot possibly claim, in the light of the provisions on the subject, any amount by way of abatement higher than that amount.
In the light of what is stated above, we must answer the question referred in the affirmative, that is, against the assessee and in favour of the department. We do so, but in the circumstances of the case without any order to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.
Question answered in the affirmative.