TMI Blog1991 (4) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... countries and the schemes were substantially different from the scheme of Indian Income-tax. In Libya, Libyan income-tax was levied on an income of Rs. 1,81,17,259. Retention amounts, i.e., money retained out of the running bills were not included in the quantification of income-tax in Libya. But, in computing the total income under the Indian Income-tax Act, the ITO added back Rs. 43,28,502 (Rs. 81,59,579 being total retention amount as reduced by the retention amount taxed in earlier years, i.e, As. 38,29,077). Further, the income in India corresponding to the income taxed in Libya of Rs. 1,81,17,259 came to only Rs. 71,74,294. Thus, the assessee in Libya paid tax on an income of Rs. 1,81,17,259, but that did not include the retention amount of Rs. 43,28,502. In India, total income was computed at Rs. 1,15,02,796, but it was inclusive of the retention amounts of Rs. 43,28,502. In Libya, tax actually paid was Rs. 1,05,93,946. 4. Having noted the figures, we may now note that as per Rule 2(ii) of the First Schedule of the Surtax Act, along with the amount of tax paid in India (vide rule 2(i), deduction is available also for the tax actually paid in respect of the foreign income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 67,26,183, subject to quantification by the assessing officer. 5. In the context of these facts and provisions, assessee's grounds of appeal marked 1.1 and 1.2 are relevant. They may be extracted as below : 1.1 " On the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the submissions of the appellant to the effect that, he tax actually paid by the appellant in Iran and Libya ought to be considered while determining the deduction under rule 2(ii) of the First Schedule to the Companies (Profits).Surtax Act, 1964." 1.2 " The Commissioner of Income-tax (Appeals) failed to appreciate that rule 2(ii) of the First Schedule does not warrant the computation of doubly taxed income and the foreign tax paid on such doubly taxed income unlike the provisions of section 91 which specifically refer to ' doubly taxed income '." Thus, in effect, the assessee claims that under rule 2(ii), the whole of tax paid in Libya (Rs. 106 lakhs) should be allowed as a deduction. 6. In cross-appeal, the Department's substantive ground is as follows---- " On the facts and in the circumstances of the case and in law the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatable to only that part of the income which is taxed in foreign country as well as in India should be deductible. In our opinion, the construction canvassed on behalf of the assessee is preferable. Rule 2(ii) extracted above, can be viewed as first referring to the Company, which has been charged to tax outside India, and then laying down that ' any portion ' of the taxed foreign income is included in the total income as computed under the Income-tax Act. If these conditions are satisfied, the tax actually paid in respect of foreign income would be deductible under rule 2(ii). The CIT(A) has rightly noted that much depends upon the meaning to be attributed to the word ' such ' appearing in rule 2(ii). In common parlance, this word ' such ' connotes more often than not, qualitative aspect (as distinguished from quantitative aspect). In the matter before us, this is all the more important because in rule 2(ii) in the first part, the words used are ' any portion of its income...'. While along with the word ' such ', the word ' portion ' is not put. There could have been quite some substance in the Department's contention, if the word ' such ' was followed by the words ' portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "...... 4% Contractors Tax (on total receipts of Erection Work --- both Rial portion and foreign currency portion) Rs. 45,28,274 " The CIT(A) held that it was not taxed in respect of income, profits, gains, etc. The learned advocate for the assessee submitted that it is quantifiable with reference to the gross receipts but it is in reality, tax in respect of income. He has submitted that entire tax is deducted at source at 5.5% of the gross amounts payable, but at the time of final assessment, credit is given only for 11/2% of the amount of total payments. According to him, therefore, the remaining 4% of the gross amounts payable is retained as part of tax on income. He has emphasised that it is only a way of quantifying the tax in respect of income and it does not cease to be a tax in respect of income. He has cited parallels in the Income-tax Act for charging income-tax as a percentage of gross receipts, etc., such as S. 44AC, S. 44BB, S. 44BBA, S. 44BBB and indirectly through S. 44D also. He has further submitted that this apart, after all, Surtax is a tax on super-profits of the company and the liability is fastened and quantified after allowing deduction of even In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of the contractor in the case of default on the part of the employer. This does not change the nature of Contractors Tax. Assessee's this ground of appeal is rejected. 16. Assessee's grounds of appeal marked 2.1 and 2.2 are as follows---- 2.1 " On the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the appellants' submissions regarding increases in the capital employed by Rs. 1,25,97,072 on account of retention money not credited in the accounts but taxed in the assessment order." 2.2 " The Commissioner of Income-tax (Appeals) failed to appreciate that if the retention money had been credited in the books of account, the profits for the earlier year and the reserves as on the first day of the computation period would have been higher to that extent and accordingly the increase in the reserve ought to be considered while computing the capital employed as per the Second Schedule to the Companies (Profits) Surtax Act, 1964." Obviously, they are in the context of quantification of the capital base, and assessee's contention is that in the final accounts (including balance sheet), the retention amounts have not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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