1984 (10) TMI 101

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....ny is the year ended 30-9-1977. For the assessment year 1978-79, the company claimed in their return a deduction of Rs. 43,695 by way of head office expenditure. There is no dispute on this figure. The ITO felt that the provisions of section 44C of the Income-tax Act, 1961 ('the Act') would be applicable. This provision allows deduction to be computed on three alternative basis. The statute provides for the amount to be deducted which is the least of the three alternatives. According to the ITO, one of the alternatives provided is to average out the expenditure in the prior years and allow an amount equal to it. Now, the assessment year 1978-79 is the first assessment for the assessee in India. Therefore, there was no expenditure under the ....

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....the other Contracting State unless the enterprise has a permanent establishment situated in the other Contracting State. The proceedings have been taken on the footing that the assessee-company has a permanent establishment in India. Now, clause (2) of article III provides that where an enterprise of one of the Contracting States has a permanent establishment situated in the other Contracting State, there shall be attributed to such permanent establishment the industrial or commercial profits which it might be expected to derive in that other Contracting State, if it were an independent enterprise. Now, clause (3) of article III is crucial to the issue before us, This clause reads as follows : "(3) In determining the industrial or commerci....

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....ents which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the agreement. 3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act, that will govern the taxation of income." Now, it will be seen from the above that the ITO have been directed to compute the income accord....