TMI Blog1993 (6) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,371 6,56,341 Add : Provision for taxation 4,68,195 6,48,860 ---------------- ---------------- Malaysian Income 10,17,566 13,05,201 Loss in India 3,48,472 4,40,658 Less : Donations 75,000 82,700 ---------------- ---------------- Indian Loss 2,73,472 3,57,958 --------------- ---------------- Net Malaysian income after setting off Indian loss 7,44,094 9,47,243 --------------- ---------------- One other material fact needs to be noticed and that is that foreign exchange was remitted to India with a view to making investments in suitable estates in India. The foreign exchange thus remitted was lying in the Bank till it was utilised for purchase of estates in India. The amount lying to the credit of the assessee's bank account naturally earned interest. In the previous year relevant to the assessment year 1984-85 interest earned was Rs. 47,776, while in the immediately succeeding year of account the interest earned was Rs. 47,196. The said two receipts were taken into reckoning while computing what the assessee had chosen to label " Indian loss " for both the assessment years. 4. The assessee's case before the Assessing Officer, in essence, was first that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the assessee's own case, decided the exigibility issue relating to the Malaysian income in favour of the assessee. As for the exigibility issue relating to the interest income, the CIT(A) declined to interfere in the matter. Rejecting the assessee's contention that interest income must be assessed as business income, the CIT(A) held that foreign exchange remitted to India from Malaysia, no doubt, originally represented the assessee's income from Malaysian estate : even so, the interest earned in India on the money lying in the bank was Indian income, which was chargeable to tax and was rightly brought to charge as such. 8. As already pointed out, in the assessment for the assessment year 1984-85 the Assessing Officer had estimated the interest income at Rs. 60,000. On this issue the CIT(A) directed the Assessing Officer to verify the details and to ascertain the exact quantum of interest income received by the assessee during the relevant year of account and bring to charge the current interest income. 9. As pointed out earlier, again, in the assessment for the assessment year 1984-85 the Assessing Officer had adjusted the ' Indian loss ' of Rs. 2,73,472 against the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3,57,958. 11. It is in these circumstances that the assessee is now before us. 12. Shri Palaniappan, the learned counsel for the assessee, strongly contended that the CIT(A) was not justified in holding that the interest income of the assessee could not be set off against ' Indian loss '. According to him, the ' Indian loss ' represented the expenditure incurred by the assessee on the maintenance of administrative office in India, holding board meetings, maintaining the register of shareholders and the like. This would mean that the expenditure in question was essentially expenditure incurred on " business operations carried on in India ", and was not attributed exclusively to " holding property at Malaysia ". According to him, the management by the assessee from India of the rubber estate situate in Malaysia is very much business in India. In any event, the entire administrative expenses related to the business in Malaysia and, consequently, only the Indian expenses net of the interest income earned in India should have been considered as administrative expenses failing to be adjusted against the income arising in Malaysia. Yet another point that was made by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which accrues or arise outside India during the accounting year, even if it is not received in or brought into India [section 5(1)(c)]. It should, therefore, follow that normally the income derived by the assessee from its Malaysian estate is exigible to Indian income-tax. Normally, again, if in the course of its business the assessee keeps surplus funds with banks and earns interest thereon, such interest income will have to be treated as business income and taxed as such. On this general principle, interest income earned by the assessee will normally have to be assessed as business income. And, again normally speaking, the expenditure incurred by the assessee in India for purposes of running the Malaysian estate would be adjusted against the income derived by the assessee from that estate. In other words, normaly, the assessee would have succeeded in its claim. For a fact, even if the interest income in question were to be treated as income falling under the residuary head ' Income from other sources ', the assessee would have succeeded in its claim because of the provisions of the Income-tax Act relating to inter-head adjustments. 17. But, as pointed out earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 7(1), the income from the enterprise carried on by the assessee-company shall be taxable only in India. But the enterprise carries on business in the other Contracting State, namely, Malaysia, through a permanent establishment situated therein in this case, the rubber plantation. Therefore, by virtue of the latter part of Article 7(1), the Malaysian Government is competent to levy tax on the income or profits of the enterprise in question to that extent that the income or profits is attributable to the permanent establishment in Malaysia, namely, the rubber plantation. And it is common ground that the Malaysian Government had brought to charge so much of the income or profits as is attributable to the rubber plantation. 20. True, under Article 5(2)(a), a place of management is also a permanent establishment within the meaning of the said Article. It is also not disputed that the registered office of the company, which is the source of general direction and control of the Malaysian rubber plantation, is situate in India, even though the day-to-day affairs of the rubber plantation are looked after by a foreign company situate in Malaysia. The question that arises for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 7(3) of the Avoidance Agreement, the expenditure incurred in India are all attributable only to the enterprise carried on by the assessee in Malaysia. In other words, no part of the expenditure incurred in India can be treated as " business loss in India " as claimed by the assessee. 22. Since no part of the Malaysian income accrued or arose in India, there is no question of apportioning the Malaysian income between the activities conducted Malaysia and those conducted in India. Therefore, the provisions of paragraph (2) of Article 7 of the Avoidance Agreement cannot be invoked. In other words, under the terms of the said Agreement, the entire business relating to the enterprise must be held to be situate in Malaysia. Consequently, as has been held by the ITAT in the case of P. V. AL. Kulandayan Chettiar v. ITO [1983] 3 ITD 426 (Mad.) (SB), no part of the Malaysian income could enter into the computation of the total income of the assessee under the Income-tax Act, 1961. 23. What is the treatment to be given to the interest income earned by the assessee in India ? To this question we may now turn. Here again, whatever might be the position under general principles, by virtu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was that it was entitled to the benefit of inter-head adjustments as respects interest income brought to charge under the head ' Income from other sources ' on the one hand, and the so-called Indian loss on the other. We are unable to accept this contention. For more reasons than one. First, as already demonstrated, no part of the Malaysian income accrued to the assessee in India. Secondly, the so-called ' Indian loss ' was nothing but the aggregate expenditure incurred by the assessee in India for purposes of running the Malaysian plantation. Consequently, not only on general principles but also by virtue of the specific provisions contained in the Avoidance Agreement (see Art. 7(3)) the said expenditure will have to be taken into reckoning for purposes of computing the income from the Malaysian plantation. For a fact, even according to the assessee, the Malaysian income-tax authorities had taken into reckoning the aforesaid Indian expenditure for the purposes of computing the income from the plantation chargeable to Malaysian income-tax. Thirdly, the entirety of the income of the Malaysian plantation is chargeable to Malaysian income-tax under the provisions of Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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