TMI Blog1993 (9) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... etween India Socialist Peoples Libyan Arab Jamahiriya (hereinafter referred to as ADT), while the contention of the revenue is that, even under the said ADT, the income is assessable under the Indian income-tax and the assessee is only entitled to tax credit for the tax paid by it in Libya. 3. The contract receipt fromLibyawas Rs. 75,95,122, on which a profit of Rs. 6,59,718 was shown by the assessee. The consolidated profit loss account prepared for all its global activities contained the credit from Libyan receipts and the net profit was arrived at. Referring to Articles IV VI of the ADT betweenIndiaandLibya, the assessee had claimed that, the net profit fromLibyashould be excluded for Indian income-tax. The Assessing Officer estimated the net profit from Libyan contract at 10% of the contract receipts and considered for the purposes of the assessment Rs. 7,59,512, and did not apply the agreement for ADT. In appeal, the assessee desired the consideration of the agreement of ADT with reference to Articles IV VI. The CIT(A) in para 5 of his order, considered 'permanent establishment' defined in article IV and the definition of business profits and its taxability as contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tering into ADT by the Government and it is an accepted position that, in recognition of this feature, the present ADT withLibyahad come into force. It is normal in all such ADT agreements to provide that the provisions of ADT would take the place of the provisions of the Income-tax Act, i.e., the ADT would be treated as the mini Code for taxation. The definition of the various terms, the concept of taxation etc., are therefore to be examined with reference to the various articles contained in ADT and they need to be applied. The preamble to the ADT agreement between India and Libya dated 2-3-1981, read "Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all the provisions of the said convention shall be given effect to in the Union of India". Chapter I prescribes the scope of the convention and Article 1 describes the taxes covered, as "This convention shall apply to taxes on income imposed on behalf of eachContractingStateor local authorities, irrespective of the manner in which they are levied. They shall be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and since, in the instant case we are concerned with the business profits, we shall reproduce the salient clauses of this article, for the sake of facility: 1. The profits of an enterprise of aContractingStateshall be taxable in the State where the enterprise is situated and also in the State where it has a permanent establishment, in which case, the tax shall be limited to the profits attributable to the permanent establishment. 2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to the permanent establishment the profits engaged in the same or similar activities under the same or similar activities under the same or similar condition and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In the determination of the profits of a permanent establishment, there shall be allowed deduction expenses which are incurred for the purpose of the permanent establishment whether such expenses have been incurred in the State in which the permanent establishment is situated or elsewhere in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident of a Contracting State derives income which has also suffered tax in the other Contracting State, the first-mentioned State shall allow a deduction from its tax on the income of that person equal to the tax in the other Contracting State; provided that the deduction from its tax on the income of that person equal to the tax in the other Contracting State; provided that the deduction shall not exceed that part of the tax, as computed before the deduction is given which is applicable to the income taxed in the other Contracting State. Nothing in this Article contained shall prevent the granting of such further relief as may be appropriate under the provisions of the law of anotherContractingStatein respect of any amount by which the tax in case of the States exceeds the credit allowed on its account in the other State in accordance with the provisions of this article." We are therefore of the opinion that, the assessee has been correctly taxed on the income arising from Libya in India and according to Article XX of the ADT, is entitled to relief that is due to it, in the shape of tax credit, i.e., to the extent of the tax that has been paid in Libya. The appeal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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