C.A.P. ANDIAPPAN vs. C.I.T. MADRAS & ANR

CIVIL APPEAL No. 1689/1968Supreme Court[1972] 1 S.C.R. 8809 August 1971Bench: 2 JudgesAuthor: K.S. HEGDE, A.N. GROVER6 pages
AI SummaryDismissed

What were the facts?

The appellant, a resident of India, carried on business in Ceylon. For assessment years 1959-60 and 1960-61, his entire assessable income was earned in Ceylon. He was taxed in Ceylon as a resident, resulting in a lower tax liability than if he were taxed as a non-resident. The Indian Income-tax authorities computed his tax under Indian law and granted an abatement equal to the tax paid in Ceylon. The appellant sought a higher abatement, arguing he was not liable to be taxed in India at all, or alternatively, that the abatement should be based on the tax he would have paid as a non-resident in Ceylon. The High Court confirmed the Income-tax authorities' order.

What did the Supreme Court hold?

The Tribunal held that the appellant was liable to be taxed in India. This was based on Article 3 of the Agreement, which states that 'Each country shall make an assessment in the ordinary way under its own laws.' Therefore, India was entitled to assess the appellant according to its laws. Regarding the abatement, the Tribunal held that it should be equal to the tax actually levied on the assessee in Ceylon. This interpretation was derived from reading Article 3 in conjunction with item 8 of the Schedule to the Agreement. The Tribunal reasoned that 'attributable' in the Article means 'payable,' and when considering taxes attributable to a country's laws, all provisions, including exemptions and allowances, must be taken into account. Therefore, the actual tax paid in Ceylon, which benefited from the provisions of Section 45(2) of the Ceylon Income-tax Ordinance, was the correct amount for abatement. The Tribunal applied the ratio of the Supreme Court decision in Ramesh R. Saraiya v. C.I.T. Bombay, which dealt with a similar agreement between India and Pakistan.

What were the issues?

1. Whether the appellant was not liable to be taxed at all in India, in light of the Agreement for Assessment for Relief or for Avoidance of Double Taxation between India and Ceylon, as provided in Section 49A of the Indian Income-tax Act, 1922. 2. If the appellant was liable to be taxed in India, what should have been the proper abatement, considering the tax paid in Ceylon and the provisions of the Agreement and Section 45(2) of the Ceylon Income-tax Ordinance, 1932. Assessee's Contentions: - The appellant contended that the Agreement exempted him from Indian taxation altogether. - Alternatively, he argued that the abatement should be the entire tax he would have paid in Ceylon as a non-resident, relying on the Agreement. Revenue's Contentions: - The revenue contended that the appellant was liable to be taxed in India under its ordinary laws. - They argued that the abatement should be the actual tax paid in Ceylon, considering all provisions of the Ceylon tax statutes, including exemptions and allowances, rather than the theoretical tax payable as a non-resident.

Which sections of the Income-tax Act were involved?

Section 49A,Section 45(2)

AI-generated summary — verify with the full judgment below

C.A.P. ANDJAPPAN v. C.1.T. MADRAS & ANR August 9, 1971 [K. S. HEGDE AND A.N. GROVER, JJ.] Income-tax Act (11 of J 922). s. 49A-Agreement between h1d;a and Ceylon, Art 3, ;rem 8-Scope of-Relief under qey!on Income-tax Ordinance 1932 s. 45(2)-Abatement to wl11c/1 a!1 assessee res;dent ;,i Ind;a and carry;,1g on business in Ceylon rs elllitled to.

The appellant was a resident in India and was carrying on business in Ceylon.

His entire assessable income for the years 1959-60 and 1960-61 was what he earned in Ceylon.

He was liable to be assessed as a non-resident, but, in view of s. 45(2) of the Ceylon Inco~e-tax Ordinance, 1932, and of the Agreement for 'Assess~ent for Re!Jef or for Avoidance of Double Taxation in India and Ceylon' as prov1ded ·in s. 49A of the Indian Income tax Act, 1922, he was taxed as if be was a resident in Ceylon and assessed to pay a sma11er sum as ta~. The Income-tax authorities in India computed the tax under the Ind1an law .and gave as abatement, t11e tax payable by him in Ceylon as per the Agreement, and cal1ed upon him to pay the balance.

On the questions: (I) whether be was not liable to be taxed at all in India, and (2) if he was

The order continues below.

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