VEERASWAMI J.
We are of the view that the question referred to us should be answered in favour of the assessee, the question being whether, in the circumstances and on the facts of the case, the Tribunal's decision that the assessee is entitled to double taxation relief of a sum of Rs. 2, 23, 399 is correct in law. We are here concerned with the assessment year 1947-48. The assessee is a public limited company carrying on banking business with its headquarters at Madras. It has a number of branches in different places. Travancore State was one of such places where it had a number of branches. In respect of the previous year ended December 31, 1946, the assessee returned a business income of Rs. 11, 23, 729. This amount included among other things the income of the Travancore branches. In Travancore the bank was separately assessed on a total income of Rs. 2, 26, 159. This income was arrived at by the income-tax authorities in that State after declining a claim to deduction of Rs. 48, 338 representing interest payable by the Travancore branches taken together to the head office of the assessee. The assessee in the circumstances applied for double income-tax relief in respect of the sum of Rs. 2, 23, 399 which included the sum of Rs. 48, 338. The Income-tax Officer gave the relief asked for, but only limited to Rs. 1, 74, 496. On appeal, the Appellate Assistant Commissioner of Income-tax did not agree with him in so far as he had declined tax relief in respect of the sum of Rs. 48, 338. The appellate authority was of the view that this sum too was qualified to the relief. The Tribunal, on appeal by the department, accepted the view of the Appellate Assistant Commissioner and rejected the appeal. This reference therefore comes before us at the instance of the department It seems to us that, on the facts we have set out, the only conclusion which is possible is the one taken by the Appellate Assistant Commissioner and confirmed by the Tribunal in regard to the relief granted in respect of the sum of Rs. 48, 338. Under section 49A of Indian Income-tax Act, 1922, the Income-tax (Double Taxation Relief) (Indian States) Rules, 1939, were framed. Rule 3 of these Rules is as follows
"If any person who has paid by deduction under section 18 of the Indian Income-tax Act, 1922, or otherwise, Indian income-tax for any year on any part of his income proves to the satisfaction of the Income-tax Officer that he has paid for the corresponding year by deduction or otherwise State income-tax in respect of that part of his income, he shall be entitled to the refund of Indian income-tax calculated on that part of his income at a rate bearing to the Indian rate of tax or the State rate of tax, whichever is the lower, the same proportion as the Indian rate of tax bears to the sum of the Indian rate of tax and the State rate of tax."*
This is followed by a proviso with which we are not concerned in this case. The Tribunal expressed its view in this manner
"It therefore follows that the whole of such profits assessed in Travancore are to be deemed as included in the Indian assessment; the part is included in the whole."*
It is argued for the revenue that this is too broad a view of the scope of rule 3. The test for granting relief under the rule is not whether the part is included in the whole, so runs the argument, but whether any part of the income which has been assessed to tax in India has also suffered tax in the Native State. We accept that this is the correct approach to the scope of rule 3. For purposes of this rule, what is meant by "any part" and "that part" is that there should be identity of the source and, we think, also identity of income. Unless this test is satisfied, the requirements of rule 3 are not fulfilled and no relief under the rule can be granted. The question therefore cannot be whether the part in respect of which relief is asked for is included in the whole, but whether any part of the income has suffered tax under the Indian Income-tax Act and that part, both identical in source and character of the income, has been charged to tax in the Native State. In this case the facts clearly satisfy the test under rule 3The sum of Rs. 48, 338 represented, as we mentioned, the interest payable to the head office. The arrangement appears to be that where the branches in the Travancore State drew money from the headquarters, the branches paid interest to the headquarters, and conversely when the headquarters of the assessee received money from its branches, it paid interest on it. Apparently what weighed with the Income-tax Officer was that the sum of Rs. 48, 338 was claimed by the assessee in the Travancore State as a deduction and the deduction having been disallowed by the Travancore income-tax authorities, it could not be taken as income. Without hesitation we are of the view that this is not the correct approach to the question. The branches in Travancore made profits which as returned were assessed to tax and the profits assessed included the sum of Rs. 48, 338, though it happened to be so included as a result of refusal of the claim to deduction. Notwithstanding the refusal, the sum of Rs. 48, 338 was part of the business profits made by the Travancore branches. We are here not concerned with the question whether in reality the branches could at all pay interest to the head office and vice versa. For the purpose of rule 3 what is important is only the income that is notionally or statutorily assessed under the Income-tax Act and correspondingly income which is assessed to tax in the Travancore State
The view that we have taken of the scope of rule 3, as we see, is supported by Assam Railways and Trading Co. v. Commissioners of Inland Revenue. Lord Blanesburgh in his speech in the House of Lords, referring to a rule corresponding to the Indian rule 3, observed
"Not adverting for the moment to the question whether the word 'part' as used in the section does or does not connote a sum of money brought into charge both in the United Kingdom and, in this case, in India, that word does certainly, I think, point to the source from which the income is derived, ' the part ' and ' the same part ' being brought in the section into relation with each other by their identity of source. The word appears to me to denote what may be described as a 'compartment' of the assessee's total income, if I may select, as a more pregnant term, one suggested by its similarity in sound."Lord Wright expressed himself thus
" The contention of the appellants is to the contrary ; it is said on their behalf that the words ' the same part of his income ' refer solely to what is called the source, and that identity of amount is immaterial and does not come into question except for the purpose of ascertaining the rate of tax to be allowed for. I cannot agree with this argument."*
The only difference between the english rule and the indian rule is that instead of "that" in "that part", the word "same" has been used in the English rule. We are of the view that the observations of the House of Lords in relation to the corresponding rule apply equally to the interpretation of the Indian rule 3. In any case, on the facts before us, there is not the slightest doubt that in respect of the sum of Rs. 48, 338, there is both identity of source and identity of income and rule 3 is fully satisfied
In our opinion, the question referred to us should be answered in favour of the assessee and against the department with costs. Counsel's fee Rs. 250
Question answered in favour of the assessee.
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