Executive Summary

Unilateral relief is granted in respect of doubly taxed income under section 91 of the Income- tax Act. What is relevant is the income which is actually included in the total income of the assessee before deduction of weighted deduction under section 35B of the Act, in respect of income which arose in Iran. The plain reading of section 91 speaks of the income which accrued or arose outside India. In the instant case the income which accrued or arose in Iran was the income before deducting weighted deduction under section 35B. Method of computing relief under section 91 has been discussed in this article.

The case of Best and Crompton Engineering Ltd.

1. It is quite common to give relief in respect of doubly taxed income under the Double Tax Avoidance Agreement. However, there are some jurisdictions which give unilateral relief in respect of doubly taxed income under the domestic law. India is one such country which gives unilateral relief in respect of doubly taxed income under section 91.
    

2. Method of giving unilateral relief can give rise to different interpretation of the provisions of the Act. Such issues are resolved at the judicial forums after careful deliberations.
    

3. A similar situation arose in the case of CIT vs. Best and Crompton Engineering Ltd. (2006) 284 ITR 255 (Mad).

3.1 In the said case the assessee, a company in which public are substantially interested earned income from Iran amounting to Rs. 25,61,426/-on which it paid tax amounting to Rs. 10,29,564/- in Iran. In terms of section 91 of the Income-tax Act, the assessee claimed Double taxation relief which was allowed by the Income Tax Officer. Later the Assessing Officer rectified the assessment under section 154 of the Act after deducting the weighted deduction under section 35B amounting to Rs. 20,00,056/- from income and worked out the double taxation relief at Rs. 5,61,370/-.

3.2 The assessee filed an appeal to the Commissioner of Income Tax (Appeals) who held that the weighted deduction under section 35B should not be deducted from Iranian income while computing the relief from double tax relief on the foreign income of Rs. 25,61,426/-.

3.3 In response to it the Department went in appeal to the Income Tax Appellate Tribunal. The Hon. Tribunal upheld the order of the CIT (A) relying on the decision of the Supreme Court in the case of K.V. AL. M. Ramanathan Chettiar vs. CIT (1973) 88 ITR 169.

4. The Department went in appeal before the Hon'ble High Court and the following question of law was referred to the Hon. Court.

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled for relief under section 91 of the Income-tax Act, 1961 without taking into account the weighted deduction allowed under section 35B of the Income-tax Act, in respect of the Iranian income?”

4.1 The Revenue submitted that the order of the A.O. was correct in excluding the deduction allowed under section 35B of the Income-tax Act from Iranian income for giving relief under section 91 of the Act. Reliance was placed on the decision of CIT vs. M.A. Mois (1994) 210 ITR 284.

4.2 Strangely enough none appeared for the assessee.

5. Analysis by the Hon'ble Court

5.1 The Hon'ble Court went through the provision of section 91 giving unilateral relief which read as under :

1. “the assessee should be resident of India in the previous year;
    

2. the income should have accrued in fact outside India and should not be deemed under any provision of this Act to accrue in India;
    

3. the income should be taxed both in India and in a foreign country with which India has no agreement for relief against or avoidance of double taxation; and
    

4. the assessee should have in fact paid the tax in such foreign country by deduction or otherwise.”

5.2 The Hon'ble Court observed that the unilateral relief is granted only in respect of the “doubly taxed income”, which means that, that part of the income is actually included in the assessee’s total income. The word “income” as it is understood for the purpose of section 91 would be the income computed in the normal sense before adjustment of deduction under section 35B. What is contemplated by the term or expression “income” in the said section is not an exact quantum or measure of the income as computed either in India or abroad for the purpose of taxation in the respective countries, but the income as ordinarily understood in a commercial business sense. This is so, because the Indian tax laws may not be identical to the laws obtaining in another country and the computation of income in either country would not result in the same quantum of income since each country has its own fiscal policies and tax structure and allowances.

In the instant case the income earned by the assessee was Rs. 25,69,426/-. Section 91 precisely speaks of the income which accrued or arose outside India before making deduction under section 35B. The assessee company is entitled to relief from double taxation in respect of the said income before deduction under section 35B. It is incorrect to curtail the benefit of relief by making deduction under section 35B.

5.3 The court drew support from the decision of the apex court in the case of K.V. AL. M. Ramanathan Chettiar vs. CIT (1973) 88 ITR 169; it is clear that the double taxation relief has to be worked out on the Iranian income earned abroad, as above.

5.4 In the case cited by the Revenue in CIT vs. M.A. Mois (1994) 210 ITR 284, it was held that the amount deducted under Chapter VI-A under section 91 of the Act is not doubly taxed income and hence no relief is available in respect of such income.

5.5 In the instant case the fact is that the Iranian income was actually included in the assessee’s total income, and as a result there was in reality a doubly taxed income. When income is doubly taxed the assessee is entitled to the unilateral relief under section 91 of the Act.

6. Decision

Based on the above analysis the Hon'ble Court answered the question referred to it in favour of the assessee and against the revenue.

7. Our observations

This decision clearly brings out the provision of section 91 of the Act that what is relevant is the income included in the foreign income and not the foreign income after deduction under Chapter VI-A . What is pertinent is that the decision is given after cogent reasoning though none appeared for the assessee.