Raju, J.
1. The taxability and computation of income of a resident of India in respect of the income derived from a foreign source is the subject-matter of a batch of tax reference cases pending on the file of this court. An adjudication of the issues raised depends upon the agreement entered into between the Government of India and the Government of Malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes of income published in Notification No. 1705/F. No. 11(43)/46-FTD dated July 1, 1977. Learned counsel appearing in some of the cases have selected a few of the representative cases which could be decided initially so that the other cases could be ultimately decided applying the ratio of these cases. Though the terms of reference in different cases vary, the core of the problem and the basic issues involved for adjudication are similar and identical and, consequently, these cases are taken up for consideration together.
2. Tax Case No. 264 of 1983 : The assessee in this case is a firm owning certain rubber estates in Malaysia. During the assessment year 1977-78, the assessee earned an income of Rs. 88,424. The assessee also sold an item of property, the short-term capital gains of which resulted in a sum of Rs. 18.113. On the ground that both the items of income are assessable in India, the Income-tax Officer assessed the assessee on an income of Rs. 1,06,540 to tax of Rs. 12,727 and adding interest under section 139(8) in a sum of Rs. 10,775, a total demand of Rs. 23,502 was raised against the assessee. Aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), Madurai. The appellate authority allowed the appeal applying article 1 read with articles 7 and 6, respectively, of the agreement for avoidance of double taxation. The matter was pursued on appeal before the Appellate Tribunal by the Department and the Tribunal also rejected the appeal. Thereupon, the Department moved the Tribunal for a reference and the Tribunal by its order dated June 7, 1982, referred the following two questions for the adjudication of this court :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income from the rubber estates in Malaysia cannot be included in the total income of the assessee and assessed to tax in India under the Income-tax Act, 1961
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's finding that the assessee does not maintain a separate establishment in India in respect of the rubber estates in Malaysia is at all relevant and if so whether it is based on materials and facts relevant thereto, regard being had to the provisions contained in the agreement for avoidance of double taxation between Malaysia and India ?'
3. Tax Case No. 789 of 1984 : The assessee in this tax case is a Hindu undivided family and a resident in India. It earned business profits (share income) and property income from Malaysia. The assessee claimed before the Income-tax Officer that the Malaysian income is not includible in the total income in India in view of the agreement of avoidance of double taxation. The Income-tax Officer assessed the assessee on an income of Rs. 1,31,320 to a tax of Rs. 63,653. The Claim of the assessee that the Malaysian income should not be assessed to tax, was rejected on the ground that articles 6 and 7 of the agreement use the word 'may' and, therefore, the country of residence has got every right to tax such income. The assessee filed an appeal before the first appellate authority in respect of the business income and the first appellate authority held that the Malaysian income is includible only for rate purposes, though it was held to be otherwise not taxable. The Department pursued the matter on appeal before the Tribunal but the same was rejected. The assessee also filed an appeal objecting to the inclusion of the income even for rate purposes. In view of certain conflicting views prevailing among different Benches, the matter was heard by a Special Bench of three Members and it was held by the Special Bench that the direction of the first appellate authority to include the foreign income for rate purposes shall stand cancelled. Thereupon, at the instance of the Department, by an order of reference dated September 28, 1983, the following question of law has been referred for the adjudication of this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's decision that the Malaysian income cannot be subjected to tax in India is in accordance with the Agreement for Avoidance of Double Taxation entered into between the Government of India and Malaysia (Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36) ?'
4. Tax Case No. 790 of 1984 : The assessee in this case is a Hindu undivided family and a resident in India. It earned income from the rubber estates owned in Malaysia. The Assessing Officer was of the view that, since the assessee is a resident and has been exercising control over the foreign business from within India having regard to article 6(2)(a) of the agreement, the profit attributable to such control in India can be taxed in India and double taxation relief will be available only in terms of article 22(1)(c) of the agreement. On appeal, the first appellate authority ordered the deletion of the entire income of Rs. 1,68,330 from Malaysia on the view that unless the Malaysian enterprise carries on business in India, its profits in Malaysia cannot be taxed. The Department pursued the matter in appeal before the Tribunal. In view of the conflict of views prevailing in the Tribunal as to whether the Malaysian income is includible for rate purposes or not, the matter was placed before a Special Bench. The Tribunal, on an elaborate consideration of the matter with particular reference to the provisions of the Income-tax Act and also the terms of the avoidance of double taxation agreement, held that article 6 of the agreement was a provision 'to the contrary' so far as the Income-tax Act, 1961, is concerned in relation to the income from immovable property in Malaysia. So far as the business profits earned from Malaysia are concerned, the Tribunal held, applying article 7 of the agreement, that no portion of the business is attributable to establishments other than permanent establishments in Malaysia and consequently article 7 of the agreement also must be considered to be a provision 'to the contrary' so far as Income-tax is concerned. As regards interest income, it was held that the reasons relating to the property income would equally apply and consequently such income would also be taxable only in Malaysia and to that extent article 12 of the agreement also must be considered to be a provision 'to the contrary' for the purpose of the Income-tax Act. The Tribunal also considered the scope of article 22 of the agreement. The Tribunal repelled the stand of the Department that the income from Malaysia is first includible in the total income for rate purposes and held that having regard to the provisions 'to the contrary', no part of the income accrued in Malaysia could be included in the assessment even for rate purposes. Thereupon, at the instance of the Department, the following question of law has been referred for the adjudication of this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's decision that the Malaysian income cannot be subjected to tax in India is in accordance with the agreement for avoidance of double taxation entered into between the Government of India and Malaysia (Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36) ?'
5. Tax Cases Nos. 840 and 841 of 1984 : The assessee in these tax cases is a Hindu undivided family and a resident in India. It has earned income from house property and business in India and also interest on deposits, dividends and income from lands in Malaysia. The Income-tax Officer computed the assessee's income inclusive of the foreign income in a sum of Rs. 41,608 and inclusive of capital gains and assessed the assessee to tax, holding at the same time that the assessment will be subject to levy under avoidance of double taxation agreement on production of necessary tax receipts for having paid the tax in Malaysia. The assessee filed in appeal before the first appellate authority contending that the assessee did not exercise any control over the Malaysian affairs and that the entire income from Malaysia ought to have been excluded from its taxable income. Though the said appellate authority partly allowed the appeal holding that the income derived from dividends and interest are not taxable in India in view of article 8 of the agreement, he also held that they are includible for rate purposes and subject to the production of certificates that the incomes referred to in the order have been taxed in Malaysia, the orders of the Assessing Officer may be revised. Not satisfied with the nature of relief accorded, the assessee pursued the matter further before the Tribunal on appeal. The Department also filed an appeal. The plea of the assessee was that it is not necessary for the assessee to produce any certificate of assessment from the authorities in Malaysia. The Department contended that the relief ought not to be allowed on mere production of the certificate of assessment. The Tribunal, by a common order, disposed of both the appeals and held that the relief claimed and allowed by the first appellate authority will not be subject to the production of the certificate and allowed the appeal of the assessee while dismissing the appeal filed by the Department. Thereupon, at the instance of the Department, the following question of law was referred for the adjudication of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the Income-tax Officer to allow double Income-tax relief without a certificate from the Malaysian Revenue authorities to show that the Malaysian income of the assessee has already suffered tax ?'
6. Tax Case No. 135 of 1985 : The assessee in this case is a company and a resident in India. It earned income from Malaysia from house property, business and also capital gains from Malaysia. The claim of the assessee for exclusion of the income from Malaysia to the tune of Rs. 11,05,230 from immovable properties, profits and gains of business and capital gains, was rejected by the Income-tax Officer, but, on appeal by the assessee, it was upheld in so far as it related to rental income from property and business income. The claim relating to the capital gains was disallowed on the ground that there is no specific provision in the agreement for avoidance of double taxation for exclusion. Aggrieved against that portion of the order, the assessee pursued the matter further in appeal before the Tribunal. The Tribunal upheld the plea of the assessee that capital gains arise from sale of immovable property and, consequently, it springs out of the property income and is governed by article 6 of the agreement and, therefore, such income is not taxable in India. Thereupon, at the instance of the Department, the following question of law was referred to the adjudication of this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's decision that capital gains arising in Malaysia cannot be subjected to tax in India is in accordance with the agreement for avoidance of double taxation between India and Malaysia (Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36) ?'
7. Tax Case No. 72 of 1987 : The assessee in this case is a firm and a resident in India. The assessee owns certain rubber estates in Malaysia and during the assessment year 1977-78 it earned an income of Rs. 88,424 and from the sale of an item of property a short-term capital gain of a sum of Rs. 18,113 also accrued. The Income-tax Officer assessed both the incomes as assessable in India. When the assessee pursued the matter on appeal before the first appellate authority, the said authority applied article 7(1) of the avoidance of double taxation agreement and ordered the exclusion of the business income from Malaysia. Likewise, it was held that no capital gains in respect of a property situated in Malaysia can be taxed in India. The Department pursued the matter on appeal before the Tribunal. The Tribunal rejected the appeal of the Department and concurred with the order of the first appellate authority. Thereupon, at the instance of the Department, the following question of law was referred to this court for adjudication :
'Whether, on the facts and circumstances of the case, the Tribunal is justified in directing the exclusion of the income from capital gains arising on the sale of the property in Malaysia on the basis of article 6 of the agreement for avoidance of double taxation between India and Malaysia (Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36) ?'
8. Mr. J. Jayaraman, learned senior counsel appearing for the Revenue contended that the avoidance of double taxation agreement does not have the effect of depriving the Department of assessing the income derived from Malaysia in all these cases, that the right under section 5(1)(c) of the Act to tax a resident on his global income cannot be denied to the State, that the provisions contained in article XXII demonstrate that the object of the agreement is only to eliminate double taxation and that it is only in cases where it is shown that the same income has been subjected to tax both in India and Malaysia that the tax payable in Malaysia shall be allowed as a credit against the Indian tax payable in respect of such income. It is also submitted that the fact that the agreement in question was also meant to prevent fiscal evasion with respect to taxes on income cannot be ignored in construing the scope and purport of the various provisions relating to different categories of income. Learned senior counsel also contended that the tax avoidance contemplated under the agreement in question may be effectively given effect to by adopting the tax credit system and not by total exclusion or exemption method. Our attention has been invited to the various articles in the agreement to highlight the position and justify the stand of the Revenue that wherever there was no prohibition against this country from assessing the income to tax, the language employed has been 'may be taxed' in an enabling form and where there is a total prohibition, it is specifically stipulated and the pattern adopted is to indicate in which of the contracting States, the income concerned 'shall be taxable', or 'shall not be taxed in the other contracting State'. While contending that the tax credit system is also a provision with reference to tax avoidance since it can also be treated as expenditure and claimed with even right to carry forward, it is also submitted that by allowing exemption of an income once and for all the same goes out of the net of taxation, even for rate purposes. While reliance was placed upon the decisions in CIT v. Carew and Co. Ltd. : [1979]120ITR540(SC) and A. C. Paul v. CIT : [1974]97ITR652(Mad) , it was contended that the decision of the Division Bench of the Karnataka High Court in CIT v. R. M. Muthaiah : [1993]202ITR508(KAR) does not consider the issue from all relevant angles and, therefore, the same does not merit the acceptance of this court.
9. Mr. K. R. Ramamani, learned senior counsel appearing on behalf of the assessees, contended that the use of mandatory or enabling language in some of the article of the agreement is neither relevant nor indicative of the absence of a prohibition as claimed for the Revenue, that there is clear cut difference concept wise between avoidance and relief, that the agreement entered into with Malaysia in substance belongs to an avoidance category though in respect of some special cases tax relief clauses have been employed, that wherever what is obvious is to be dealt with for exclusion, the enabling language has been liberally adopted and in respect of area of doubtful understanding, the mandatory language has been used to place matters beyond doubt or controversy and the overall intention and emphasis is on the situs of the source of income so as to exclude the same from the reach of the other contracting State. While contending that wherever express provision is made in an article of the agreement, with reference to a particular category of income, it excludes by necessary implication the other contracting State (non-source country) from taxing the same and the decision of the Karnataka High Court is based on sound reason and deserves acceptance and application to these cases also. To controvert the claim on behalf of learned senior counsel for the Revenue, that the report or the commentaries on the articles of the Economic Co-operation and Development (OECD) Model convention provide a guide for interpretation of the articles of the agreement it is contended that the same was made known and published subsequent to the agreement in question and, therefore, cannot be the basis for interpreting the words in the agreement in question. That apart, it is also stated that they cannot provide a safe guide or basis of interpretation of the articles of the agreement. As for the stand of the Revenue on article XXII, it is contended for the assessee that where double taxation results on account of non-fulfilment of the conditions stipulated for complete exemption or exclusion alone the said article would get attracted and construed thus, there would be complete reconciliation of the said provision with the other provisions and object and aim of the agreement and that any other interpretation is likely to defeat the very object of the agreement itself. Consequently, on behalf of the assessees, it is contended that income derived from immovable property including capital gains derived in respect thereof, whether forming part of an Indian enterprise or not, business income of a company, individual or Hindu undivided family, firm including a share of partnership attributable to business are all taxable only in Malaysia where the permanent establishment is situated and that the entire profits are attributable to Malaysian source only. As for dividend, interest, royalty and salary earned also, it is contended that they are taxable in Malaysia which is the country of the source. So far as capital gains are concerned, it is also contended that disposal of immovable property is as much a method or form of use so as to treat the same as income from such immovable property. In controverting the stand of the Revenue that the income from Malaysia is liable to the taken into account for arriving at the total income of the resident for rate purposes, it is contended that when the provisions of section 5 itself stood excluded on account of a provision to the contrary made in the agreement which is as much a law by itself, there is no scope whatsoever to take into account the income from Malaysian sources even for rate purposes. Mr. Balasubramaniam, one of learned counsel appearing for the assessees, while adopting the submissions of learned senior counsel for the assessees, contended that if the interpretation sought to be placed upon the articles of the agreement by the Revenue is accepted, it would lead to all sorts of anomalies and practical difficulties resulting in total negation of the purpose of the agreement itself. The other learned counsel appearing for the assessees adopted the above submissions on behalf of the assessees.
10. The charge of Income-tax is in respect of the total income of the previous year and the total income of any previous year of a person who is a resident includes all income from whatever source derived which accrues or arises or is received in India or which accrues or arises to him outside India during the previous year (section 5 of the Act). Section 6 defines what constitutes residence for the purpose of the Act. Section 90 enables the Central Government to enter into an agreement with the Government of any country outside India for : (a) the granting of relief in respect of income on which have been paid both Income-tax under the Act and Income-tax in the country outside India; (b) for the avoidance of double taxation of income under the Act and the corresponding law in force in the other country; (c) for the exchange of information for the prevention of evasion or avoidance of Income-tax chargeable under the Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance; and (d) recovery of Income-tax under the Act and under the corresponding law in force in that other country and to make such notification as may be necessary for implementing the agreement. The avoidance method absolves the assessee concerned from undergoing the ordeal of assessment at both places and seeking a refund of any excess tax he might have paid after the completion of the assessment as envisaged in the tax credit system. Section 91 which provides for unilateral relief stipulates that a resident in India who suffers tax on the same income in India and in any other country with which India did not have a tax treaty during the relevant period is extended, the unilateral relief shall be granted if the assessee is able to establish that he was resident in India during the year in question in which income was liable to tax, that the income in question accrued or arose in the country outside India and could not also be deemed to have accrued or arisen in that country and for that matter could not be deemed to have accrued or arisen in India and the tax on such income was actually paid in the foreign country either by way of deduction at source or otherwise. If the deduction is found to be equivalent to a sum calculated on the doubly taxed income to tax, at the Indian rate of tax or at the rate of tax of that country, whichever is lower or at the Indian rate if both rates are equal. In computing the total income of an assessee all income on which no Income-tax is payable under Chapter VI shall also be included and where any income on which no tax is payable under the provisions of the Act is included in the total income of an assessee, he shall be entitled to a deduction from the amount of Income-tax with which he is chargeable on his total income of an amount equal to the Income-tax calculated at the average rate of Income-tax on the amount on which no Income-tax is payable.
11. So far as the batch of cases now for consideration before us is concerned, there is no dispute that they all pertain to the taxability of the various categories of income derived from Malaysia and there exists an agreement between the Government of India and the Government of Malaysia for the avoidance of double taxation. Equally there is no dispute over the fact that all the assessee under consideration are residents in India and the issue relates to one or the other or more than one of the categories of income derived such as income from immovable property, capital gains arising out of sale of an item of immovable property, business income, dividend income, interest on deposits, etc., from sources situated in Malaysia. Equally, there is no dispute about the accounting of the income or the quantification and the determination of such income or the existence or otherwise of the source only in Malaysia from which the income has been earned or derived.
12. Article VI(1) provides that the income immovable property may be taxed in the contracting State in which such property is situated and such income must have been derived from the direct use, letting or use in any other form of immovable property. Income from immovable property of an enterprise also was subjected to the provisions of this article. Article VII provides that the income or profits of an enterprise of one of the contracting States shall be taxable only in that contracting State unless the enterprise carries on business in the other contracting State through a permanent establishment situated therein and if the enterprise carries on business as aforesaid tax may be imposed in that other contracting State on the income or profit of the enterprise but only on so much of that income or profits as is attributable to that permanent establishment. Article XI provides that dividends paid by a company which is a resident of a contracting State to a resident of the other contracting State may be taxed in the first mentioned contracting State. Where a company which is a resident on one of the contracting States derives income or profits from sources within the other contracting State there shall not be imposed in that other contracting State any form of taxation on dividends paid by the company to persons not resident in that other contracting State or any tax in the nature of an undistributed profits tax on the undistributed profits of the company whether or not those dividends represent, in whole or in part, income or profits so derived. Article XII provides that interest derived by a resident of one of the contracting States from the other contracting State may be taxed in that other contracting State. The term 'interest' was to mean income from Government securities, bonds or debentures whether or not secured by mortgage and whether or not carrying a right to participate in profits and debt claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. It may be noticed that unlike some of the agreements entered into by the Government of India with some other foreign countries, so far as the agreement entered into with the Government of Malaysia is concerned there is no specific stipulation or provisions with reference to the treatment of capital gains and this has led to keen debate among counsel appearing on either side at the time of hearing.
13. Article XXII deals with the elimination of double taxation and it provides that the laws in force in either of the contracting States will continue to govern the taxation of income in the respective contracting States 'except where provisions to the contrary are made in this agreement'. Paragraph 2(a) of this article also provides that the amount of Malaysian tax payable under the laws of Malaysia and in accordance with the provisions of the agreement whether directly or by deduction by a resident of India in respect of income from sources within Malaysia which has been subjected to tax both in India and Malaysia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. It is the language of this sub-article which is mainly availed of by the Revenue to justify its claim and stand in this batch of cases.
14. Learned counsel appearing on either side placed reliance on some of judicial pronouncements to substantiate their respective claims and it would be useful to refer to them before undertaking for consideration the various issues raised. The decision of the House of Lords in Assam Railways and Trading Co. v. IRC [1934] 2 ITR 467 was relied upon to support the claim on behalf of the assessees that the intention of the Legislature must be ascertained from the words of the statute, with such extraneous assistance as is legitimate, and that the language of a Minister of the Crown, in proposing in Parliament a measure which eventually becomes law is inadmissible and the report of the Commissioners is even more removed from value as evidence of intention.
15. The decision in Navinchandra Mafatlal v. CIT : [1954]26ITR758(SC) is of the Supreme Court wherein in construing the word 'income' in entry 54 in List I of the Seventh Schedule to the Government of India Act, 1935, a Constitution Bench of the apex court held the word occurring in a legislative head conferring legislative power to be of the widest connotation inclusive of a capital gain. The decision in State of U. P. v. Ramagya Sharma Vaidya, : 1966CriLJ79 , is that of the Supreme Court construing clause 7 of the Iron and Steel (Control) Order, 1956, and particularly the word 'use'. The apex court held that the word 'use' must take its colour from the context in which it is used and in the context of the clause under their consideration, it was suggestive of something done positively, namely, utilisation or disposal. It was also observed that mere 'non-use' could not be construed as inclusive of the word 'use'. The decision in Sevantilal Maneklal Sheth v. CIT : [1968]68ITR503(SC) is that of the Supreme Court wherein the scope of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, came up for consideration, and the court was obliged to consider the scope of the word 'income' in section 2(6C) which expression has been used in section 16(3)(a)(iii) of the Act. The problem arose in the context of the question raised therein as to whether the sale of assets transferred to a wife by her husband could be included in the total income of the assessee under section 16(3)(a)(iii). Their Lordship of the Supreme Court held as hereunder (at page 507) :
'It was argued, in the first place, that what comes within the ambit of section 16(3)(a)(iii) was 'the income from the assets', i.e., the income which the asset produces while it continues to remain in the hands of the assessee and does not include the gain which the assessee makes by selling the asset and parting with possession of it. We see no justification for this argument. In our opinion, there is no logical distinction between income arising from the asset transferred to the wife and arising from the sale of the assets so transferred. The profits or gains which arise from the sale of the asset would arise or spring from the asset, although the operation by which the profits or gains is made to arise out of the asset is the operation of the sale. If the asset is employed, say by way of investment and produces income, the income arises or springs from the asset; the operation, which causes the income to spring from the asset, is the operation of the investment. In the operation of the investment, income is produced while the asset continues to belong to the assessee, while in the operation of a sale, gain is produced, which is still income, but in the process the title to the asset is parted with. Although the processes involved in the two cases are different, the gain which has resulted to the owner of the asset, in each case, is the gain, which has sprung up or arisen from the asset. There is hence no warrant for the argument that the capital gain is not income arising from the assets, but it is income, which arises from a source which is different from the asset itself. It was argued, in the second place, that section 16(3)(a) (iii) was enacted in 1937 when the word 'income' did not include 'capital gains' and income from property was understood to be income falling under that head in section 6 of the Act.'
16. The decision in L.Hirday Narain v. ITO : [1970]78ITR26(SC) is one wherein the Supreme Court expressed the view that if a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to a case and even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise power which is invested in aid of enforcement of the right, public or private, of a citizen.
17. Learned counsel for the Revenue relied upon a decision in Paul (A. C.) v. CIT : [1974]97ITR652(Mad) which is the decision of a Division Bench of the court whereunder the Agreement for Avoidance of Double Taxation between India and Ceylon came up for consideration. Applying the ratio of the decision of the Supreme Court in O. A. P. Andiappan v. CIT : [1971]82ITR876(SC) , it was held by the learned judges of the Division Bench that each country is entitled to make an assessment in the ordinary way, under its own laws and if the tax payable on the income arising or accruing in Ceylon under the Indian Income-tax Act is in excess of the tax payable in Ceylon, an abatement or refund equal to the amount of tax payable under the Ceylon Act is to be given to the assessee and, consequently, it cannot be claimed that the entire income accruing in Ceylon is not liable to be taxed in India. It may be noticed even at this stage that this decision may not be of much assistance to the cases under consideration before us for the simple reason that the pattern of agreement as well as the language of the clauses incorporated therein are totally different from the one in the agreement entered into between the Government of India and Government of Malaysia. The decision of the Division Bench turned mainly on the construction of article III of the agreement between the Government of India and Government of Ceylon wherein it is postulated specifically that each country shall make assessment in the ordinary way under its own laws and where either country under the operation of its laws charges tax on any income from the sources or categories of transactions specified in column I of the Schedule to the agreement in excess of the amount calculated according to the percentages specified in the other part of the Schedule, that country shall allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country. The decision in CIT v. Carew and Co. Ltd. : [1979]120ITR540(SC) is one involving consideration by the Supreme Court of an agreement entered not for avoidance of double taxation entered into between India and Pakistan and particularly article 4 of the said agreement. In deciding the issue raised therein, the learned judges of the apex court noticed the distinction between the avoidance of double taxation and relief from double taxation in the following terms (at page 548) :
'Before parting with this case, it is appropriate to point out that a distinction exists between the avoidance of double taxation and relief against double taxation. That distinction is evidenced by the two clauses of section 49A of the Indian Income-tax Act. One important feature distinguishing the two concepts lies in this that in the case of avoidance of double taxation the assessee does not have to pay the tax first and then apply for relief in the form of refund, as he would be obliged to do under a provision for relief against double taxation. The respective schemes embodying the two concepts differ in some degree from each other, and that needs to be borne in mind when statutory provisions are referred to and cases are cited before the court on a point involving double taxation.'
18. The decision in CIT v. R. M. Muthaiah : [1993]202ITR508(KAR) is that of a Division Bench of the Karnataka High Court wherein the Division Bench construing the very agreement between India and Malaysia has expressed the same view as the one expressed by the Tribunal against the Revenue in these cases.
19. We have carefully considered the submissions of learned counsel appearing on either side. Section 90 of the Act enables among other things the Government of India to enter into an agreement 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 under the Indian Act and in the other country outside India and or the avoidance of double taxation of income under the Act and under the corresponding law in force in the other country. Conceptually though there exists two different methods of elimination of double taxation, viz., the exemption method or the tax credit method, the provisions of the particular agreement for avoidance of double taxation entered into by the Government of India with the Government outside the country only could indicate the particular method adopted with a particular country and this would go a long way in understanding and answering the questions raised for our decision in these cases. A perusal of some of the agreements to which our attention has been invited by learned counsel only go to show that no one method or strait-jacket formula has been adopted uniformly in all cases or for that matter even in entering into an agreement with one country. For example, a reference to the agreement entered into with the Government of Ceylon and the Government of Malaysia itself would demonstrate the distinguishing disparity in the pattern of agreements adopted. The agreement with Ceylon which fell for the consideration of this court and the apex court provides that each country shall make assessment in the ordinary way under its own laws and then only provides for abatement of a portion of the tax liability in the manner and to the extent stipulated (vide articles III and IV). Per contra, article XXIII(1) of the agreement with Malaysia under the caption of elimination of double taxation, would declare that the laws in force in either of the contracting States will continue to govern the taxation of income in the respective States except where provisions to the contrary are made in the agreement. Therefore, it is obvious and inevitable that where there exists a provision to the contrary in the agreement, there is no scope for applying the law of any one of the respective contracting States to tax the income and the liability to tax has to be worked out in the manner and to the extent permitted or allowed under the terms of the agreement. In cases where perhaps there is no specific provision to the contra, the local tax law governing the levy of Income-tax in the respective States shall be applicable and if in the course of such application, assessment and determination of the tax liability, double taxation results or has been brought about of the entirety of the particular category of income in both countries, then the tax credit or relief contemplated in the other provisions of article XXII would get attracted and have got to be applied. That apart, in respect of some categories of income, total exemption or elimination is not contemplated and in certain other cases, the exemption depends upon the fulfilment of certain conditions and in all such cases only tax credit or relief can be accorded to the extent permissible under the various provisions of the agreement to avoid double taxation.
20. The stand taken for the Revenue that for rate purpose and the determination of the total income, all such income derived from a source in Malaysia shall first be taken into consideration in computation, in our view, does not merit acceptance and allowing the Department to do so would amount to permitting flagrant violation of law as also the agreement entered into, in these cases, with the Government of Malaysia. It is a well-accepted principle of construction of statues and rule of interpretation that whenever a particular act or thing is ordained to be performed or done in a particular manner and subject to certain conditions and by some one specified in this regard, it shall be taken to mean and considered inevitably that the same shall be done only in that manner and in no other manner and consequently an implied prohibition of doing it in any other manner comes to stay. As noticed supra, if in any of the provisions of the agreement entered into with Malaysia, it is stipulated that a particular income has to be available for assessment by any one of the contracting States as specified or identified therein, either in its entirety or a portion or there is any prohibition that one of the contracting States alone and the other shall not assess the said category of income or a portion thereof, the same would constitute in both of such cases, a provision to the contrary and consequently there is no further scope for allowing the laws in force in either of the States, per se being allowed to govern the taxation of the income in the respective States other than in a manner contemplated or ordained in the agreement. That this should be the indisputable position envisaged by the Governments of the contracting States has been made amply clear by the legislative will also be disclosed by Parliament enacting sub-section (2) of section 90 of the Act, though in 1991, but with effect from April 1, 1972, that in cases where the Central Government has entered into an agreement with the Government of any country outside India, then, in relation to the assessee to whom such agreement applies, the provisions of the Income-tax Act, 1961, shall apply only to the extent they are more beneficial to that assessee, and obviously, therefore, are not attracted in other cases or circumstances.
21. Tax treaties are for that matter considered to be mini legislations containing themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries. Such variations are in some cases in addition to the existing local tax laws and in other cases in lieu thereof. That being the legal position, the exposition of the said position also by the Central Board of Direct Taxes in their Circular No. 333 dated April 2, 1982 (vide : [1982]137ITR1(Bom) ), assumes significance and importance inasmuch as they can also be traceable to the powers of the Board under section 119 of the Act. Consequently, wherever the double taxation avoidance agreement provides for a particular mode of computation of income, the said method alone is required to be followed, irrespective of the provisions of the Income-tax Act, and it is only where there is no specific provisions in the agreement to the contrary the basic tax law in force in the country will get attracted and govern the taxation of such income. If the income in any particular case in respect of sources within Malaysia has to be subjected to tax both in India and Malaysia, then alone the provisions of paragraph (2) of article 22 would be attracted and not otherwise.
22. The contention on behalf of the Revenue that wherever the enabling words such as 'may be taxed' are used there is no prohibition or embargo upon the authorities exercising powers under the Income-tax Act, 1961, from assessing the category or class of income concerned cannot be countenanced as of substance or merit. As rightly pointed out on behalf of the assessees, when referring to an obvious position such enabling form of language has been liberally used and the same cannot be taken advantage of by the Revenue to claim for it a right to bring to assessment the income covered by such clauses in the agreement, and that the mandatory form of language has been used only where there is room or scope for doubts or more than one view possible, by identifying and fixing the position and placing it beyond doubt. The reliance sought to be placed on behalf of the Revenue on the commentaries on the articles of the model convention of 1977 presented by the Organisation for Economic Co-operation and Development (OECD) is inappropriate and unjustified. Further, it is not really the format adopted that really matters when basically they differ in their content and approach. A perusal and comparison of the content and purport of the articles in the model convention and those actually found in the agreement with Malaysia under consideration would go to show the wide range of difference which would per se render the commentaries on the model convention wholly inapplicable and expose the unreasonableness and futility in seeking to apply the same as a guide for interpretation and construction of the articles in the agreement under consideration. We are of the view that the commentaries relied upon can be of no use and utility and cannot also afford a safe or reliable guide or aid for such construction.
23. Coming to the categories or classes of income to be dealt with in these cases and the relevant clauses of articles in the agreement under consideration the first item for consideration is the income from immovable property. Section 22 to 27 of the Income-tax Act, 1961, broadly deals with the taxability in this regard under the Act. But, in view of paragraph 1 of article VI, income from immovable property can be taxed only in and by the contracting State in which such property is situated. There is no scope for the other contracting State dealing with such income. As to what constitutes immovable property for the purposes of the article has also been stated in detail. The article further stipulates that the provisions of paragraph (1) shall apply to income derived from the direct use, letting or use in any other form of immovable property. Controversies and conflicting claims have been made by the parties before us regarding the capital gains which is derived on account of the sale, exchange or transfer of the capital asset itself. Sections 45 to 55A of the Income-tax Act, 1961, deals with this aspect. Normally, the situs of the capital asset alone should provide the safe guide to decide as to which of the contracting States should have the power to tax such income. The ratio underlying paragraph 1 of article VI would also lead only to this inevitable course. But, the plea on behalf of the Revenue is that the sale or exchange or transfer of the capital asset itself cannot be claimed to be an instance of 'use' of the property itself so as to contend that it is an income from immovable property. Disposal of the property or the capital asset itself is in our view as much a form or method of use of the immovable property as such, and the words 'direct use........ or use in any other form' are sufficiently wide enough to include within its scope the transfer, sale or exchange of the property. As held by the apex court in the decision in Sevantilal Maneklal Sheth v. CIT : [1968]68ITR503(SC) , the profits and gains which arise from the sale of the asset would arise or spring from the asset, although the operation by which the profits or gains is made to arise out of the asset is the operation of the sale and consequently, there is no warrant for the submission that the capital gain is not income arising from the use of the assets. The provisions of article VI alone would apply and govern the assessment of capital gains also derived from the immovable property situated at Malaysia.
24. So far as business profits are concerned which are generally dealt with under sections 25 to 44D of the Income-tax Act, 1961, the clauses in article VII alone would apply to income derived from sources in Malaysia. Paragraph 1 stipulates that the income or profits of an enterprise of one of the contracting States shall be taxable only in that contracting State unless the enterprise carries on business in the other contracting State through a permanent establishment, as defined in article V, situated therein and if the enterprise carries on business as aforesaid, tax may be imposed in that other contracting State on the income or profit of the enterprise but only on so much of that income or profits as is attributable to that permanent establishment. In all these cases, there is no serious factual dispute over the position that the entire business profits are attributable only to the Malaysian source and, consequently, the business income, be it that of the company, individual or Hindu undivided family, firm including the share of partnership attributable to business is taxable only in Malaysia where the permanent establishment is situated and the authorities under the Act in this country cannot also assess the same in this country.
25. As far as the taxability of dividend income is concerned, the provisions of sections 8 and 9 of the Income-tax Act, 1961, deal with the same. But at the same time, article XI of the agreement provides for the same stating that dividends pad by a company which is a resident of a contracting State to a resident of the other contracting State may be taxed in the first mentioned contracting State. This article also provides for various contingencies and the formula to be adopted in enforcing the same. But, suffice it to notice that the basic tenet or principle underlying the same is the situs of the company which pays or declares the dividend. Likewise, article XII of the agreement provides that interest derived by a resident of one of the contracting States from the other contracting State may be taxed in the other contracting State and the term 'interest' has been given meaning so as to take within it income from Government securities, bonds or debentures whether or not secured by mortgage and whether or not carrying a right to participate in profits and debt claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. Thus, it could be seen that the principle underlying article XII is also to ensure the taxation of income in the country of its source and the place where the income arises.
26. Having regard to the above and in the light of the conclusions arrived at, we answer the question of law referred to for our consideration in each of the tax cases as hereinafter :
Tax Case No. 264 of 1983 :
(1) As for the first question of law, we answer the same in the affirmative and hold that the income derived from the rubber estates in Malaysia cannot be included in the total income of the assessee and assessed to tax in India under the Income-tax Act, 1961.
(2) As for the second question of law, we answer the same in the affirmative holding that the finding of the Tribunal that the assessee does not maintain a separate establishment in India in respect of the rubber estates in Malaysia is based upon relevant materials and facts having regard to the provisions contained in the Agreement for Avoidance of Double Taxation between Malaysia and India and that the said finding is necessary and relevant for the adjudication of the claim that the income derived from the rubber estates in Malaysia is taxable only in Malaysia and not in this country under the provisions of the Income-tax Act, 1961.
Tax Case No. 789 of 1984 and Tax Case No. 790 of 1984 :
The question of law referred for our consideration in the above cases are answered in the affirmative holding that on the facts and circumstances of the case the decision of the Appellate Tribunal that the Malaysian income cannot be subjected to tax in India is quite in conformity and in accordance with the provisions of the agreement for avoidance of double taxation entered into between the Government of India and Malaysia and notified under Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36). Tax Cases Nos. 840 and 841 of 1984 :
The question of law referred in the above cases are answered in the affirmative holding that the Appellate Tribunal was correct in holding and also directing the Income-tax Officer to allow the benefit of double Income-tax relief without insisting upon the production of a certificate from the Malaysian Revenue authorities to show that the Malaysian income of the assessee has already actually suffered tax. Tax Case No. 135 of 1985 :
The question of law referred for our consideration is answered in the affirmative holding that the decision of the Appellate Tribunal that the capital gains arising in Malaysia cannot be subjected to tax in India is in accordance with the terms of the agreement for avoidance of double taxation entered into between the Government of India and Malaysia notified in the Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36. Tax Case No. 72 of 1987 : The question of law referred for our consideration is answered in the affirmative holding that the direction of the Appellate Tribunal ordering the exclusion of the income from capital gains arising on the sale of a property in Malaysia is quite in accordance with law and well justified in view of the provisions contained in article VI of the agreement for avoidance of double taxation entered into between the Governments of India and Malaysia, notified in Notification No. G. S. R. 167(E), dated April 1, 1977 (see [1977] 107 ITR 36).
27. Having regard to the facts and circumstances of these cases, there shall be no order as to costs.