JUDGMENT

UNTWALIA J.:—This is an appeal by certificate and in it is involved an important question of law as to the interpretation of Article IV of the "Agreement for Avoidance of Double Taxation in India and Pakistan", hereinafter called the Agreement. The only case on the point decided by any Court in India so far brought to our notice is the decision of the Calcutta High Court, which is under appeal, reported in Commr. of Income-tax, West Bengal III v. Carew & Co. Ltd. (1973) 87 ITR 459.

2. Carew & Company Ltd., the respondent in this appeal, was resident in India having its Registered Office in Calcutta. The concerned assessment year is 1956-57. The corresponding previous year of the Company ended on June 30, 1955. During the relevant period the sources of income of the respondent company were from (a) business in India and interest earned in India on securities; (b) manufacturing business in Pakistan and (c) agricultural properties in Pakistan. For the relevant year the assessees Indian income as computed by the Income-tax Officer was Rs.2,01,329/- from business and Rupees 373/- from interest on securities. The total of the two items was Rs.2,01,702/-. The profit from assessees manufacturing business in Pakistan was computed at Rupees 3,26,368/-. In respect of the agricultural property, however, there was loss and it was determined at Rs.3,20,839/-. The Income-tax Officer deducted by way of set-off the agricultural loss of Rupees 3,20,839/- against the profit of the manufacturing business amounting to Rupees 3,26,368/-. The net profit of the assessee thus determined in respect of the two sources in Pakistan was Rs.5,529/-. Deducting the statutory figure of Rupees 4,500/- from the above net profit of Rs.5,529/-, he gave the Company relief against double taxation on the figure of Rs.1,029/- only. Initially, the assessee asked for abatement of tax on Rupees 5,529/- but subsequently by filing a revised return it claimed abatement on the entire profit from its manufacturing business in Pakistan i.e. Rs.3,26,368/- claiming at the same time a set-off of the whole amount of Rs.3,20,839/- from the total income determined in India. The Appellate Assistant Commissioner affirmed the decision of the Income-tax Officer, as in his opinion, Article IV of the Agreement permitted relief only on the amount of net profit of Rupees 5,529/- from which, of course, the statutory deduction of Rupees 4,500/- had to be made. The assessee Company, however, succeeded when it took the matter in second appeal to the Appellate Tribunal. It was held by the Tribunal that the assessee was entitled to abatement of tax under the Agreement on the entire profit from manufacturing business earned in Pakistan during the relevant year. Since the agricultural income of the assessee in respect of its agricultural properties in Pakistan was to be treated as taxable income in India, the loss was allowable under the Indian Income-tax Act, 1922, hereinafter called the Act. The final conclusion drawn by the Tribunal was in these terms :-

"Now, therefore, the position is that the assessee has : (1) Income from business in Pakistan, which is taxed 100 per cent not there; (2) loss in Agriculture, which is not taxed there. Therefore, whereas relief has to be given on the taxed business income in Pakistan under the aforesaid Agreement for Avoidance of Double Taxation, no question of relief arises on the loss in agricultural income. In this view of the matter, the rebate granted only on the difference between the business profit and agricultural loss in Pakistan amounts to negation of the assessees right to receive abatement of tax on income taxed in Pakistan.

In our opinion, therefore, income-tax relief has to be given on the Pakistan business income in accordance with the provisions of the aforesaid agreement without setting it off against the agricultural loss".

3. At the instance of the Commissioner, Income-tax, Bengal the Tribunal referred the following question of law to th