A C PAUL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a contractor for the supply of hardware and other goods to the Government departments in Ceylon. For the assessment years 1952-53 to 1958-59, he was assessed in the status of "individual" and "resident and ordinarily resident" on his income comprising of his total income accruing or arising in Ceylon. Originally these assessments were completed by the Income-tax Officer adopting the income from Ceylon on a provisional basis subject to revision on receipt of certificates of assessments from the Ceylon income-tax authorities. On receipt of those certificates, the Income-tax Officer noticed that the income determined by the Ceylon taxation authorities was more than the income which had been included in the Indian assessments when they were completed earlier. THE Income-tax Officer accordingly gave notice to the assessee for rectification and enhancement of the assessments for and from assessment years 1952-53 to 1958-59. In reply to a notice, the assessee put forward a claim for relief under the terms of the Agreement for Avoidance of Double Taxation between India and Ceylon, hereinafter referred to as the Ceylon Agreement.

(2.) . The Income-tax Officer finally determined the amount of abatement due to the assessee under the Ceylon Agreement for all the seven years under consideration, rejecting certain contentions of the assessee relating to the manner in which the abatement should be determined under article III of the Ceylon Agreement In order to understand the contentions of the assessee, we feel it would be better to take the year 1955-56 as an illustrative case and consider the same. The assessment order for that year is as followsAssessment Assessmentmade in made inIndia CeylonRs. Rs1. Income assessed 70, 408 68, 9422. Less : Earned income relief3. Total taxable income 70, 408 68, 9424. Net tax payable 31, 696 20, 3655. Add: Tax deducted at sourcetemporary tax6. Total 31, 696 20, 3657. Rate of tax8.Percentage of profits taxable ineither country 100% Indian 100%incomeAssessment Assessmentmade in made inIndia Ceylon9. Ceylon income included in the Rs. Rsabove total income 66, 278 66, 27810. Tax attributable to Ceylonincome included in the assessment 29, 836 19, 578.0711. Abatement : Tax demanded asper assessment 31, 696.12Less : Abatement 19, 578.07Balance tax payable 12, 118.05Less: Tax already paid. 2, 904.25Balance payable 9, 213.80According to the assessee, the entire income of 'Rs. 66, 278 accrued in Ceylon has to be omitted from the assessment made in India and that amount is liable to be included and taxed only in the Ceylon assessment order. That, according to the learned counsel for the assessee, was the true meaning of the words "avoidance of double taxation". The learned counsel for the revenue, on this aspect, contended that as per the Ceylon Agreement each country is entitled to make assessments in the ordinary way under its own laws. Alternatively, the learned counsel for the assessee contended that the entire tax of Rs. 29, 836 attributable to the Ceylon income included in the Indian assessment is to be deducted as an abatement from the tax payable under the assessment made in India.

(3.) THE abatement that should be allowed is, therefore, Rs. 19, 578.07But the learned counsel for the assessee strongly relied on the decision of the Supreme Court in Commissioner of Income-tax v. Bengal River Service Co. Ltd in support of his contention that the entire income accruing in Ceylon is not liable to be taxed in India. He pointed out that the question for consideration as posed by the Supreme Court in that judgment was :] "Whether the receipt of Rs. 3, 43, 138 can be brought to tax in this country" *, and the answer was in the negative. THE submission of the assessee is based on a reading of the observations of the Supreme Court out of the context and without reference to the facts and contentions of the parties. THE appeal was filed against the decision of the Calcutta High Court in Commissioner of Income-tax v. Bengal River Service Co. Ltd. THE facts are fully stated in that judgment and they are as follows: THE assessee was carrying on business of plying river boats. At a period of time when there had been no partition of India, certain vessels belonging to the assessee were requisitioned by the then Government of India on charter basis. During the assessment year 1947-48 corresponding to the calendar year 1946 which was the accounting year of the assessee, it earned Rs. 3, 43, 138 in Calcutta and Rs.7, 296 in Narayan Gunj (Pakistan). At the point of time when the assessment was taking place, partition of British India into India and Pakistan had already taken place. THE Income-tax Officer held that the vessel hire rent to the tune of Rs. 3, 43, 138 was the income exclusively earned in India and Rs. 7, 296 was earned in Pakistan and assessed the income accordingly. In so doing, he applied the provisions of article 4 and item 9 of the Schedule to the Agreement for Avoidance of Double Taxation in India and Pakistan, hereinafter referred to as the Pakistan Agreement, with reference to the sum of Rs. 7, 296 and the tax payable thereon alone. THE assessee disputed that the said sum of Rs. 3, 43, 138 received in India was an income exclusively earned in India and also claimed that the total income of Rs. 3, 43, 138 and Rs. 7, 296 must be deemed to be covered by item 5(g) of the Schedule to the Pakistan Agreement and to be taxed accordingly. It was further contended by the assessee that there was no material to hold that the chartered boats were hired exclusively from Indian ports and the income accrued in India alone. THE Tribunal and the High Court accepted these contentions and held that the sum of Rs. 3, 43, 138 was not an income exclusively received in India but it was also an income which would be governed by the Pakistan Agreement and since the income related to freight, the source of income came under the description given in item 5(g) of the Schedule to the Pakistan Agreement and not in the residuary item in article 9 thereof and directed the Income-tax Officer to revise the assessment in accordance with the directions given in its order.