The Commissioner Of Income Tax, Tn-I Chennai v. M/S.best & Crompton Engineering Ltd., S.i.e.t. Towers, Anna Salai, Chennai-600 018

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 03.01.2006 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case No.47 of 2002 The Commissioner of Income Tax, TN-IChennai...AppellantVs M/s.Best & Crompton Engineering Ltd.,S.I.E.T. Towers,Anna Salai,Chennai-600 018. ..Respondent Reference under Sections 256(1) of the Income Tax Act, 1961 byIncome Tax Apellate Tribunal, "B" Bench, Chennai in R.A. No.744(Mds)/1997 (I.T.A. 2158 (Mds.) 90) for the assessment year 1981-82againstreferenceG.I.No.7-B/81-82/47-004-CT-6861dated23.11.89/2.1.90 on the file of the Deputy Commissioner of IncomeTax, Special Range-I, Madras-34 and against IT/Appeal No.96-89-90dated 26.3.1990 on the file of the Commissioner of Income Tax(Appeals)-V, Madras-600 034. For Appellant : Mrs.Pushya Sitaraman standing Counsel for IT For Respondent: No appearance JUDGMENT P.P.S.JANARTHANA RAJA J.At the instance of the Revenue, the Income Tax AppellateTribunal has referred the following question of law arising out ofthe order dated 11.09.1997 in I.T.A. No.2158/mds/90 for the opinionof this Court. "Whether on facts and in the circumstanceshttps://hcservices.ecourts.gov.in/hcservices/of the case, the Appellate Tribunal is right inlaw in holding that the assessee is entitled forrelief under Section 91 of the Income Tax Act, under: 1961 without taking into account the weighteddeduction allowed u/s. 35B of the Income Tax Act,in respect of the Iranian income?" 2.The facts leading to the above question of law are asunder:The respondent assessee is a company in which public havesubstantially interested. The relevant assessment year is 1981-82.The corresponding accounting year ended on 31.3.1981. Therespondent assessee is a resident company. The said residentcompany earned income in Iran for which there was no Double TaxationAvoidance Agreement. The respondent company earned income from Iranamounting to Rs.25,61,426/- on which tax of Rs.10,29,564/- was paidin Iran. In terms of Section 91 of the Income Tax Act, therespondent assessee claimed a double taxation relief which wasallowed by the Assessing Officer by the Original Order dated28.10.1987. Later, the Assessing Officer revised the assessmentunder Section 154 of the Act and passed an order on 02.01.1990deducting the weighted deduction under Section 35B amounting toRs.20,00,056/- from Iran income and worked out the double taxationrelief on the sum of Rs.5,61,370/- 3.Aggrieved by the order, the respondent assessee filed anappeal to the Commissioner of Income Tax. The Commissioner ofIncome Tax (Appeal) held that the weighted deduction allowed underSection 35B should not be deducted from the Iranian income, whilecomputing the relief for double taxation and further directed torecompute the double income tax relief on the foreign income ofRs.25,61,426/- 4.Aggrieved by the order of the first Appellate Authority,the Revenue filed an appeal to the Income Tax Appellate Tribunal.The Tribunal held that the order of the Commissioner of Income Tax(Appeal) was correct, relying on the decision of the Supreme Courtin the case of K.V.A.L.M. Ramanathan Chettiar Vs. C.I.T., (88 ITR169). 5.Aggrieved by the said order of the Tribunal, the Revenuefiled the reference application before the Tribunal and the Tribunalhas referred the aforesaid question for our opinion. 4.Aggrieved by the order of the first Appellate Authority,the Revenue filed an appeal to the Income Tax Appellate Tribunal.The Tribunal held that the order of the Commissioner of Income Tax(Appeal) was correct, relying on the decision of the Supreme Courtin the case of K.V.A.L.M. Ramanathan Chettiar Vs. C.I.T., (88 ITR169). 5.Aggrieved by the said order of the Tribunal, the Revenuefiled the reference application before the Tribunal and the Tribunalhas referred the aforesaid question for our opinion. 6.The learned counsel appearing for the Revenue submittedthat the Assessing Officer was right in excluding the deductionallowed under Section 35B of the Income Tax Act, 1961 from theIranian Income to arrive at the correct Iranian income, which hadsuffered tax both in Iran and India, for the purpose of relief underSection 91 and also relied on the Andhra Pradesh High Court Judgmentreported in 210 ITR 287. Eventhough notice had been served on therespondent company in this Tax Case, there was no representation forthe assessee. https://hcservices.ecourts.gov.in/hcservices/7.We have heard the counsel appearing for the revenue. Therelevant provisions of law for our consideration is Section 91 ofthe Income Tax Act. Section 91 of the Income Tax deals with countries with which no agreement exists and it grants unilateralrelief in cases where Section 90 does not apply, subject to thefollowing conditions: "a) the assessee should be resident of India inthe previous year;b) the income should have accrued in fact outsideIndia and should not be deemed under anyprovision of this Act to accrue in India;c) the income should be taxed both in India andin a foreign country with which India has noagreement for relief against or avoidance ofdouble taxation; andd) the assessee should have in fact paid the taxin such foreign country by deduction orotherwise." The unilateral relief is granted only in respect of the "double taxincome", which means that, that part of the income is actuallyincluded in the assessee's total income. The word "income" as it isunderstood for the purpose of Section 91 would be the incomecomputed in the normal sense before adjustment of deduction underSection 35B. What is contemplated by the term or expression "income"in the said sections is not an exact quantum or measure of theincome as computed either in India or abroad for the purpose oftaxation in the respective countries, but the income as ordinarilyunderstood in a commercial business sense. This is so, because theIndian Tax laws may not be identical to the laws obtaining inanother country and the computation of income in either countrywould not result in the same quantum of income since each countryhas its own fiscal policies and tax structure and allowances. It isnot in dispute that the income earned by the respondent assessee inIran was of Rs.25,69,426/-. The said Section 91 speaks of the incomewhich accrued or arose outside India. Hence, the income whichaccrued or arose outside India, Viz. in Iran was prior to theadjustments contemplated under Section 35B. It is on that income,the respondent assessee is entitled to the benefit of double incometax relief. The curtailment of the benefit in this regard byimputing the deduction under Section 35B to the income from Iran isclearly erroneous. 8.Reading of Section 91 with the decision of the Apex Courtin the case of K.V.A.L.M. Ramanathan Chettiar Vs. C.I.T. (88 ITR169), it is clear that the double taxation relief has to be workedout on the iranian income earned abroad, as above. The learnedcounsel for the Revenue relied on the Andhra Pradesh High Courtjudgment reported in 210 ITR 287 to support the argument. It washeld in the judgment that the amount deducted under Chapter VI-Aunder Section 91 of the Income Tax Act, is not doubly taxed andtherefore no relief is available in respect of such amount. In thepresent case, that part of the income Viz. Iranian income wasactually included in the assessee's total income. Hence there was a"doubly taxed" income. When the income is doubly taxed, theassessee is entitled to the unilateral relief under Section 91 ofhttps://hcservices.ecourts.gov.in/hcservices/the Income Tax Act. Hence, the Andhra Pradesh judgment will nothelp the Revenue in this case. In view of the same, the order of the authorities below are in conformity with law and requires nointerference. 9.In such circumstance, the above question referred to us isanswered in favour of the assessee and against the Revenue. Thereference is answered accordingly. km Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To1. The Assistant Registrar, Income Tax Appellate Tribunal, “B” Bench, Rajaji Bhavan, III Floor, Besant Nagar, Chennai(5 Copies)2. The Commissioner of Income Tax, Appeals V, Chennai-34.3. The Secretary, Central B and of Revenue N.Delhi(3 Copies)4. The Deputy Commissioner of Income Tax, Special Range-I, Madras-34.5. The Commissioner of Income Tax, TN-I, Chennai.+1 CC to M/s.Pushya Sitaraman, Advocate, SR No.533SSV(CO)BG/12.1.2006 Tax Case No.47 of 2002