Double taxation relief under India-Ceylon agreement limited abatement to the lower attributable foreign tax.

Article III of the India-Ceylon double taxation relief agreement, read with the relevant Schedule and section 49A of the Indian Income-tax Act, 1922, limited abatement to the lower tax attributable to the same excess income in both countries. As the Schedule prescribed a nil percentage for the income in question, the entire assessed amount constituted the excess. The attributable taxes on that excess were Rs. 704 in Ceylon and Rs. 1,876.50 in India, so the agreement required relief only up to the lower figure. The assessee was therefore not entitled to any abatement beyond Rs. 704.

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Issues: Whether, on the facts and in the circumstances of the case, the assessee was entitled to an abatement exceeding Rs. 704 under the agreement for relief from or avoidance of double taxation between India and Ceylon.

Analysis: The question had to be answered by applying article III of the agreement read with the relevant Schedule and section 49A of the Indian Income-tax Act, 1922, under which the agreement was implemented by notification. The income assessed in both countries was Rs. 18,765. Under the Schedule, the relevant percentage for the income was nil, so the whole amount constituted the excess. On that excess, the Ceylon tax was Rs. 704 and the Indian tax was Rs. 1,876.50. Article III required an abatement equal to the lower of the two taxes attributable to the excess, namely Rs. 704.

Conclusion: The assessee was not entitled to any abatement beyond Rs. 704, and the question was answered in the affirmative against the assessee and in favour of the department.

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