TaxTMI 
TaxTMI 
2001 (1) TMI 234
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.... total income. On the royalty amount the assessee was entitled to deduction under section 80-O of the Income-tax Act to the extent of 50 per cent of the income so received and brought to India. Accordingly on the balance amount tax was levied under the Income-tax Act. On the income subjected to tax in India and Singapore the assessee is entitled to Double Income-tax Relief in terms of the Agreement between the two countries on the amount of Singapore tax payable on the income subjected to tax in both countries, but not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. For the assessment year 1987-88 the assessee claimed double Income-tax relief on a sum of Rs. 7,58,918, as the tax payable under the Tax Laws of Singapore in respect of the royalty income calculated as under: Royalty income Rs. 18,97,295 Tax payable in India on royalt....
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....nbsp; Balance royalty amount subjected to tax in India Rs. 9,48,647 ------------ Income-tax at 50 per cent on the above sum subjected to tax in India Rs. 4,74,323 Singapore tax at 40 per cent on the royalty amount su....
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..... Drawing our attention to the relevant provisions in the Double Taxation Agreement Sri Vijayaraghavan submitted that the expression "subjected to tax" used in Article 24 of the Agreement refers to the qualitative aspect rather than the quantitative aspect. According to him, it was the royalty income that was the subject-matter of taxation in both countries and so the tax payable in respect of such income was to be considered for the relief. Referring to the assessment year 1987-88 it was stated that the royalty income subjected to tax was Rs. 18,97,295. The tax payable in Singapore at 40 per cent was Rs. 7,58,918 and so the assessee was entitled to relief to that extent. The Ld. counsel placed reliance on the decision of the ITAT, C-Bench, Mumbai in the case of K.E.C. International Ltd v. STO [1991] 38 ITD 90 to emphasise that qualitative and not quantitative aspect of the expression "income subjected to tax" were to be considered for the purpose of working out the Double income-tax Relief. According to him, in the quantitative aspect the expression would denote the nature of the income, i.e., royalty in the instant case. It was his contention that as per Article 24 of the D.T.A. ....
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....was subjected to tax in India was not Rs. 18,97,295, but only the net amount of Rs. 9,48,648, after the deduction under section 80-O. It was his contention that only that net amount could be considered as having been subjected to tax in both countries and so the tax payable in Singapore in respect of that net amount alone was eligible for deduction as Double income-tax relief. The Ld. DR. further submitted that the decisions relied on by the Ld. counsel for the assessee, were distinguishable on facts and not concerned with the interpretation of the expression "subjected to tax". Sri Goraknathan contended that the CIT(A) made a correct interpretation of the relevant provisions of the Agreement and urged us to uphold his decision. 7. Under section 90 of the Income-tax Act, the Central Government is empowered to enter into an agreement with the Government of any foreign country for avoidance of double taxation of income and to make provision for implementing the agreement by issue of notification. The two clauses (a) and (b) of section 90 provide for distinct circumstances; clause (a) provides for relief in cases where Income-tax is already paid, both in India and in the foreign co....
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....in India and Singapore. What is the income which has been subjected to tax in India and Singapore in the present case? There is no dispute that the income by way of royalty subjected to tax in Singapore was Rs. 18,97,295. In India out of the royalty amount only Rs. 9,68,648, i.e., 50 per cent of the royalty was brought to tax after the deduction under section 80-O. According to the assessee the expression "income subjected to tax" refers to the nature of the income, i.e., royalty and in that sense royalty income was subjected to tax in both countries and the tax payable in Singapore being Rs. 7,58,918 (i.e., at 40 per cent on the sum of Rs. 18,97,295), credit was to be given for that amount, subject to the ceiling regarding the proportion to be maintained. On the other hand, the contention of Revenue is that "income subjected to tax" means the quantum of income that has been brought to tax and so only the net amount of Rs. 9,68,648 could be considered as income subjected to tax in both countries. The decision in the case of K.E.C. International Ltd. relied on by the Ld. counsel for the assessee is concerned with the interpretation of Rule 2(ii) of the First Schedule to the Companie....
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.... the Indian Tax Laws the assessee was allowed deduction under section 80-O and tax was levied in India, on the net amount only. Hence only 50 per cent of the royalty on which tax was levied in India, could be considered as income subjected to tax in India. Even though royalty income subjected to tax in Singapore was Rs. 18,97,295, in India the assessee had to bear the tax burden only on 50 per cent of the royalty amount. The intention behind the Agreement for Avoidance of Double Taxation is to remove the hardship caused to a tax payer by the burden f double taxation on the same quantum of income. That objective is achieved by following the procedure laid down in the provisions of the Agreement. In accordance with the provisions of clause 2(a) of the Agreement tax at the rates applicable in Singapore on that amount of income assessed in both countries has to be found but and it is 40 per cent of Rs. 9,48,647 and not Rs. 18,97,295. 11. In Singapore tax incentive is provided on 100% of the income, but tax is deemed to have been paid by deduction. There is a specific reference in clause 2(a) of Article 24 to the amount of tax payable, - whether directly or by deduction. But with reg....
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.... for the assessee is correct that the expression used in section 91 is "such doubly taxed income" and not "income subjected to tax" in both countries as appearing in the Agreement with Singapore with which we are now concerned. We may mention here that in the case of CS. Murthy decided by the A.P. High Court the expression "subjected to tax" has been used on page 691, as we have understood - ". . . The main requirement, therefore, is that the income must have been taxed outside India and the same income must have again been subjected to tax under the Income-tax Act in India. If any portion of the foreign income is not subjected to tax in India, then, the assessee will not be entitled to claim deduction on that part of the foreign income which is not subjected to tax in this country. This fits into the real scheme and intent of section 91 of the Act which is to the effect that in respect of any income, a person should not be doubly taxed, once outside India and again in India. If the income taxed outside India is subjected to tax again in India, then, the provisions of section 91 of the Act would come into operation and the assessee can claim appropriate relief on the doubly taxe....
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....scertained and then the computation of the Surtax liability would not be possible. 18. It is important to note that Surtax under the Companies (Profits) Surtax Act, 1964 can be computed only after determining the income-tax payable under the provisions of the Income-tax Act. It can be seen from rule 2(a) of the First Schedule to the Surtax Act, that the chargeable profit is computed after giving reduction for the amount of income-tax payable by the company in respect of its total income. In rule 2(ii) it is provided that in the case of a company which has been charged to tax in a country outside India on any portion of its income, profits and gains included in its total income as computed under the Income-tax Act, the tax actually paid in respect of such income, profits and gains in the said country after allowance of every relief due under the said laws is to be deducted. That means in computing the chargeable profits under the Surtax Act, from the profits and gains of the previous year, not only the amount of income-tax payable in India is allowed as deduction [as per Rule 2(i)] but also the amount of income-tax actually paid in the foreign country in respect of such income [R....