Treaty-based exclusion of Malaysian partnership income sustained; no permanent establishment and no foreign tax certificate required.

Foreign partnership income was held excluded from the assessee's Indian assessment under the applicable treaty arrangement, following the earlier connected decision, and the Revenue failed on that issue. The Tribunal's factual finding that the Malaysian firm had no permanent establishment in India satisfied the treaty test under article 7, so the income could not be taxed in India on that basis either. The article also states that the Malaysian income was not includible in total income for rate purposes, and that a certificate of taxation in Malaysia was unnecessary. The Tribunal's treaty-based exclusion of the Malaysian income was thus sustained on all substantive questions.

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Issues: (i) Whether the share income of the assessee from the Malaysian firm could be included in the assessment; (ii) whether there was a permanent establishment of the Malaysian firm in India within the meaning of article 7 of the double taxation avoidance agreement; and (iii) whether the Malaysian foreign income was includible in the total income for rate purposes and whether production of a certificate of taxation in Malaysia was necessary.

Issue (i): Whether the share income of the assessee from the Malaysian firm could be included in the assessment.

Analysis: The question was decided by applying the test laid down in the earlier connected decision, under which the foreign firm's share income was not liable to be brought into the assessee's assessment under the relevant treaty arrangement.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether there was a permanent establishment of the Malaysian firm in India within the meaning of article 7 of the double taxation avoidance agreement.

Analysis: On the facts found by the Tribunal, the treaty requirement for a permanent establishment in India was not satisfied, and the Tribunal's finding was upheld.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (iii): Whether the Malaysian foreign income was includible in the total income for rate purposes and whether production of a certificate of taxation in Malaysia was necessary.

Analysis: Reading paragraph 2 of article 2 with the permissive language used in the relevant treaty articles, the foreign income was held not to be includible for rate purposes and the production of a Malaysian tax certificate was held unnecessary.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The references were answered against the Revenue on all substantive questions, with the Tribunal's view on treaty-based exclusion of the Malaysian income being sustained.

Ratio Decidendi: Where the applicable double taxation avoidance agreement so provides, foreign partnership income is not includible in the assessee's Indian assessment, and in the absence of a permanent establishment in India the foreign income need not be brought into rateable total income or supported by a foreign tax certificate.

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