J.S. Verma, C.J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, ("the Act"), at the instance of the Revenue to answer the following question of law, namely : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to relief under Section 91(1) of the Income-tax Act, 1961, on the full amount of tax deducted at source of Rs. 16,413 in the foreign country ?"
(2.) THE relevant assessment year is 1976-77. During the relevant period, the assessee, a medical practitioner had received salary in Iran of Rs. 1,41,265 on which the tax deducted at source in Iran was Rs. 16,413. THE assessee also earned an income of Rs. 5,247 in India during the same year. THE assessee claimed deduction under Section 80RRA of the Act in respect of the remuneration received by him for services rendered outside India and also relief from double taxation under Section 91(1) of the Act. THE Income-tax Officer held that the relief under Section 91(1) was allowable only on the amount of tax paid on Rs. 70,632 which was 50 per cent. of the remuneration received for services rendered outside India since the deduction under Section 80RRA was allowed to the same extent. THE Income-tax Officer took the view that 50 per cent. of the foreign income which was deducted under Section 80RRA was not doubly taxed and, that, therefore, the remaining half only which had been included in the income for the purpose of tax in India was doubly taxed. Accordingly, it was only 50 per cent. of the foreign income which qualified for relief from double taxation under Section 91(1). The assessee's appeal to the Appellate Assistant Commissioner failed as the Appellate Assistant Commissioner confirmed the view taken by the Income-tax Officer. However, the assessee's further appeal to the Tribunal has been allowed and it has been held by the Tribunal that the assessee is entitled to the credit of the entire amount of tax of Rs. 16,413 deducted at source in the foreign country on the total foreign income of Rs. 1,41,265 and not merely to the credit of tax paid on 50 per cent. of the foreign income, i.e., Rs. 70,632, which alone has been included for tax in India under the Act. Hence, this reference at the instance of the Revenue. There is no controversy about the construction of Section 80RRA. According to this provision, the assessee was entitled to a deduction from the remuneration received by him from the foreign employer of the amount equal to 50 per cent. thereof. On this basis, deduction of Rs. 70,632, being 50 per cent. of the total foreign income of Rs. 1,41,265, was given to the assessee in computing the total income on which the assessee was required to pay tax in India under the Act. The controversy is only about the construction of Section 91(1). According to the assessee, he is entitled to relief under Section 91(1) from double taxation of the total amount of tax amounting to Rs. 16,413 paid by him in the foreign country on the total foreign income of Rs. 1,41,265 notwithstanding the fact that only 50 per cent. of the foreign income amounting to Rs. 70,632 has been included in computing the total income for the purpose of payment of tax in India. On the other hand, the Revenue contends that since Rs. 70,632 only being 50 per cent. of the total foreign income has been included in computing the total income for the purpose of taxation, it is only the tax paid on this amount in the foreign country which qualifies for relief from double taxation under Section 91(1). The question is which of the constructions made of Section 91(1) has to be accepted. The relevant parts of Section 80RRA and Section 91(1) as they existed at the relevant time are as under : "80RRA. Deduction in respect of remuneration from foreign employers.--(1) Where the gross total income of an individual who is a citizen of India includes any remuneration received by him from any foreign employer for any service rendered by him outside India, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the individual, a deduction from such remuneration 6f an amount equal to fifty per cent. thereof :" "91. Countries with which no agreement exists.--(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under Section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal." Section 80RRA says that "in computing the total income of the individual", a deduction equal to 50 per cent. of the foreign income Shall be given. Thus, the "total income" computed under the Act includes only 50 per cent. of the foreign income by virtue of the deduction granted, under Section 80RRA. As earlier stated, there is no controversy about the meaning or effect of Section 80RRA and a deduction of an amount equal to 50 per cent. of the foreign income has been given "in computing the total income of the individual".
(3.) NOW comes for consideration the disputed meaning of Section 91(1) which admittedly applies in the present case. This provision provides for relief from double taxation on that amount included in the income which has already been taxed in the foreign country. The question is : what is the amount which can be said to be doubly taxed in these circumstances ? The expression requiring construction in Section 91(1) is "such doubly taxed income". The provision for relief from double taxation is that deduction would be given from the Indian income-tax payable by the individual of "a sum calculated on such doubly taxed income" at the rate of tax specified. This means that after ascertaining the total Indian income-tax payable on the total income determined under the provisions of the Act, giving the deduction under Section 80RRA and all benefits permitted by other provisions of the Act, a deduction would be made therefrom of tax calculated at the specified rate on "such doubly taxed income", on which tax has already been paid in the foreign country. Ordinarily, this should mean that any part of the foreign income which has not been included in the income on which the Indian income-tax is payable cannot be treated as doubly taxed ; and it is only that amount of the foreign income which is included once again in the income on which the Indian income-tax is payable which can be characterised as doubly taxed. Accordingly, it is only the tax already paid on that part of the foreign income which is included once again in the income and is taxed again under the Indian Income-tax Act which is required to be deducted for the purpose of giving relief from double taxation. In other words, that part of the foreign income on which deduction is given under Section 80RRA "in computing the total income of the individual" for the purpose of determining the Indian income-tax payable cannot be said to be taxed once again in India in order to qualify for the relief from double taxation. This appears to be the logical construction of Section 91(1) which is also in consonance with the object of its enactment. If the assessee's contention is accepted, then the assessee would be given relief not only in respect of the amount which has been taxed twice but also in respect of the amount which has been taxed once only in the foreign country and not also in India on account of the deduction given under Section 80RRA while computing the total income of the individual. It is obvious that Section 91(1) is not to be construed in isolation but in the company of Section 80RRA since the two are parts of the same scheme. ;