2016 (9) TMI 6 - HC - Income Tax

Income sourced from Malaysian plantation taxed in Malaysia, not India, per Double Taxation Avoidance Agreement interpretation.

The Commissioner of Income Tax, Circle II, Madurai Versus M/s. M.R.M. Plantations Pvt. Ltd.

The Commissioner of Income Tax, Circle II, Madurai Versus M/s. M.R.M. Plantations Pvt. Ltd. - TMI Issues Involved:1. Taxability of income from Malaysian plantations under Indian tax laws.2. Interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and Malaysia regarding permanent establishments and income from immovable property.Issue-wise Detailed Analysis:1. Taxability of Income from Malaysian Plantations:The primary issue was whether the income derived from the Malaysian plantation, controlled and managed from India, should be taxed in India. The assessee had declared incomes of Rs. 9,15,250/- and Rs. 13,77,120/- for the assessment years 2005-06 and 2006-07, respectively. The Income Tax Department alleged that the assessee deliberately kept away the Malaysian plantation income from Indian taxation laws. The Assessing Officer included Rs. 56,60,224/- and Rs. 55,92,897/- in the total income for the respective assessment years, contending that the income was taxable in India due to the control and management being in India.2. Interpretation of DTAA between India and Malaysia:The appellant argued that under Article V(3)(e) of the DTAA, the plantation income from Malaysia should be taxable in India. However, the assessee contended that the income from the Malaysian plantation should be taxed in Malaysia as per Article V(2)(g) and Article VI of the DTAA, which defines a 'permanent establishment' to include a farm or plantation and states that income from immovable property may be taxed in the state where the property is situated.Judgment Analysis:Taxability of Income:The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) both ruled in favor of the assessee, stating that the income from the Malaysian plantation should be taxed in Malaysia. The ITAT referred to the Supreme Court decision in CIT v. P.V.A. Kulandagan Chettiar, which held that business income from rubber plantations in Malaysia could not be taxed in India due to the closer economic relations between the assessee and Malaysia.DTAA Interpretation:The court examined Articles V and VI of the DTAA, which define a permanent establishment and the taxation of income from immovable property. The court noted that the DTAA provisions override the Income-Tax Act and are binding on the department. The court cited previous judgments, including Commissioner of Income-Tax v. S.R.M. Firm and CIT v. P.V.A. Kulandagan Chettiar, which supported the assessee's position that income from immovable property, including plantations, should be taxed in the country where the property is situated.Conclusion:The court found no grounds to entertain the appeals of the revenue. It upheld the decisions of the Commissioner of Income Tax (Appeals) and the ITAT, which were consistent with the Supreme Court's interpretation of the DTAA. The court concluded that the income from the Malaysian plantation should be taxed in Malaysia, not India. The Tax Case Appeals were dismissed, and the question of law was answered against the revenue and in favor of the assessee.