HC Deb 04 June 1956 vol 553 cc811-7

8: 55 p.m.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

I beg to move, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Estate Duty) (India) Order, 1956, be made in the form of the Draft laid before this House on 13th April. It is common ground among hon. Members in all parts of the House that it is desirable, where possible, to achieve double taxation agreements with countries both within and without the Commonwealth. In this case, the story is as follows. Until the present Indian Estate Duty law was enacted, in 1953, credits for any Indian death duties could be allowed against British duty under powers contained in our Finance Act, 1894. A new Indian Estate Duty law was passed in 1953, however, an effect of which was that the relevant Order in Council of ours had to be revoked; and since the autumn of 1953 there has been no relief from our estate duty in respect of payment of Indian estate duty.

It has become known to the House, however, through Questions and Answers on various occasions, that negotiations have been proceeding with the Indian Government to see whether we could achieve a double taxation agreement in respect of estate duty. It has not been easy, but an Agreement was signed in India in April this year. It is now for me to present the result to the House, because an Agreement of this kind has to be confirmed by the House before it can take effect.

It has fallen to me to present to the House a number of Double Taxation Agreements in the past, and I have sensed on those occasions that what the House wishes of me is not to go through all the detail in so far as that is in standard form, but to bring to the attention of the House any special and unusual features. In this case, it fortunately happens that the Indian Estate Duty law of 1953 is on generally the same lines as our estate duty law, and so there are no fundamental difficulties, except one which I shall mention. In all other respects the Agreement follows the general pattern of our similar death duty agreements with Canada, South Africa and the United States, all of which have been approved by the House.

There is, however, one particular feature of the Indian Estate Duty law which it is my duty to describe. It is a provision which, in certain circumstances, makes a British company liable for Indian Estate Duty on the value of a deceased shareholder's shares. This provision is contained in Section 84 of the Indian Act of 1953, and it operates as follows.

Where a non-resident shareholder in a non-Indian company dies, and where the company has been treated for two out of the last three years as resident in India for Income Tax purposes under the rule which makes a company resident there if more than half of its total income is derived from India, estate duty at the rate of 7½ per cent. is chargeable on the value of the shares and recoverable from the company. There is an exemption limit of 5,000 rupees, equivalent to about £375.

Representations were made to the Indian Government against this charge on companies, before their Estate Duty Bill of 1953 became law. It was represented and, we felt, justifiably represented to them that it was essentially extra-territorial taxation, for neither the owner of the property nor the property is in India and, on accepted principles, this property being in the jurisdiction of this country should not be charged with Indian Estate Duty. It will be realised, of course, that the burden of duty falls not on the estate of the deceased shareholder, but on the company itself. However, the Indian Government were not prepared to alter their intentions. Their Bill duly became law with this unusual provision in it.

Then, of course, we had to consider how this should be handled in relation to the double taxation agreement which we sought after the Indian Bill of 1953 had become law. Our approach was that on this matter we should require the Indian Government to come to a reasonable settlement in relation to double taxation. However, to cut a long story short—and I have told the House that these negotiations were prolonged—it became all too clear that we were faced with a choice, because the Indian Government were definitely not going to make any concession on this point in a double taxation agreement. We were, therefore, faced with the choice either of accepting an agreement with this, from our point of view, objectionable concession in it, or of not getting an agreement at all.

All of us, when we are in that situation, have to balance the pros and cons and reach a decision, We have to be realists. The Government, after very carefully considering this, reluctantly came to the conclusion that we must accept the Agreement with this defect, as we think it is. We felt that, on balance, it was better from the point of view of this country to have a faulty Agreement rather than none at all, and I sincerely hope that those who have interests in India and are especially concerned with this matter, having considered the question with equal care, will have come to the conclusion that the course we took was the right one. I felt that it was proper for me to inform the House frankly of this, and to explain the reasons why we have accepted in this Agreement a most unusual feature, and a feature which we regret.

There is only one other point to which I think I ought to draw the attention of the House, and that is the date of operation of the Agreement. The Agreement will come into force on the date on which the relevant Order in Council is made here, or the date on which the Agreement is implemented in India by way of notification in the Official Gazette, whichever is the later. I understand that the Indian Government propose to issue their notification on the date on which our Order in Council is made.

The Agreement will then take effect as regards the estates of all persons who die on or after the date when it comes into force, and in addition as regards the estate of anyone dying before that date and after 15th October, 1953, if the accountable person elects to have the provisions applied to the deceased's estate. If such an election is made, it will render retrospective relief possible to the beginning of the period of double Estate Duty.

It will be appreciated that the option must lie with the accountable person, because the British Government have no means of tracing all those people who may be affected. But if the Agreement is approved, it will be possible for those concerned to claim the benefit of it in such a way that there will never be a period when an estate would be liable, as it has been in the last two or three years, to the charge of double duty. I shall be very happy indeed to seek to answer any questions from either side of the House, but I can assure the House that in all respects, apart from those which I have mentioned, the Agreement is in standard form.

9.7 p.m.

Mr. Glenvil Hall (Colne Valley)

After that very plain and lucid explanation by the Financial Secretary, there can be very few question that any of us would wish to ask. In my copy of the draft Order I had underlined the very points which the right hon. Gentleman has made, because, like a number of other hon. Members, I have watched a good many of these agreements go through from 1945 onwards. I suppose that one day we shall come to some sort of finality. Nevertheless, Session after Session we seem to find a place in the world with which to make a double taxation agreement of one kind or another.

It is to be regretted that India has taken the line which it has followed in respect of British companies with shareholders, in India. As I understand the Financial Secretary, it means that no credits whatever will pass and it will be as if those concerned were outside the scope of the Agreement. I cannot imagine anybody accountable not choosing to take advantage of these provisions. If the Agreement is worth anything, everybody involved will seek to take advantage of it. Apart, therefore, from that one real point we on this side of the House think that the Agreement is an excellent one.

9.10 p.m.

Mr. John Arbuthnot (Dover)

It never does harm to declare an interest, however remote or problematical it may be. My interest in this instance arises from the fact that I do business in India and that the greater part of the income of one company with which I am concerned arises in India. I am sure that we should not let this Agreement pass through the House and be approved without paying a very special tribute to the civil servants who were concerned in the negotiations. As my right hon. Friend the Financial Secretary has said, the negotiations were protracted and the tact and skill with which they were conducted were of such a nature as to excite the admiration and respect of everybody who had any contact with them.

My right hon. Friend has pin-pointed the nigger in the woodpile, but, on the whole, I think that the Agreement is satisfactory, except for one serious blemish. The Indian Income Tax law is such that any company in which the major part of the income arises in India is regarded as being resident in India for the purposes of Indian Income Tax. Under the Indian Estate Duty law of 1953 it was provided that any company which was regarded by the Indian Government as being resident in India for Income Tax purposes should also be liable to this penalisation, this impost, of 7½ per cent. in respect of the estates of any shareholders in that company who might die and who were not resident in India. The result is that a totally new principle as regards the assessment to Estate Duty has been introduced, a principle which seems to us in this country to be wholly reprehensible.

I am glad that my right hon. Friend has made it clear that the Government regard this blemish in the Agreement as seriously as I do, and as other people do who have been going into the matter. I would not suggest that the House should reject the Agreement on the score of this one blemish, but I would express the hope that perhaps paragraph 2, in Article III, which is the offending paragraph, will before long be rendered null and void by the negotiation of a further agreement providing that in the future the question of which country should assess Income Tax will be decided upon the sole criterion of where the control of the company lies. If that can once be established, the rest will follow.

Question put and agreed to.

Resolved, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Estate Duty) (India) Order. 1956, be made in the form of the Draft laid before this House on 13th April. To be presented by Privy Councillors or Members of Her Majesty's Household.