JUDGMENT

PATHAK, J. :— These appeals by certificate granted by the Delhi High Court are directed against a common judgment of that High Court disposing of two income-tax references relating to the assessment years 1956-57 and 1957-58 on the question whether the assessees dividend income from a Pakistan company was deductible against its business loss in India.

2. The assessee is a public limited company carrying on the business of manufacturing and selling sugar. During the relevant period it also held some shares in the Premier Sugar Mills & Distillery Co. Ltd., Mardan, West Pakistan. The Pakistan company also carried on the business of manufacturing and selling sugar. In the previous year relevant to the assessment year 1956-57 the assessee earned a dividend income of Rs. 2,30,832/- from its holdings in the, Pakistan company. It sustained a loss of Rs. 20,30,006/- from the business in India. Likewise, in the previous year relevant to the assessment year 1957-58 the assessee received a dividend income of Rs. 3,30,868/- from the holdings in the Pakistan company, but sustained a loss of Rs. 9,11,728/- from the business in India. The assessee claimed that the entire loss sustained by it in India in each year should be carried forward and set off against its business profits in India in future years. It contended that the dividend income derived by it from the Pakistan company was not liable to tax in India as it was wholly taxed in Pakistan, and therefore, it could not be set off against the business loss in India. The Income-tax Officer rejected the contention and deducted the dividend income received from the Pakistan company from the business loss in India disclosed by the assessee and after making certain other adjustments he determined the total loss of the assessee for the assessment year 1956-57 at Rs. 16,51,120/- and for the assessment year 1957-58 at Rs. 3,78,661/-

3. The assessee appealed to the Appellate Assistant Commissioner of Income-tax in respect of each assessment year, but the appeals failed, except that in the case for the assessment year 1957-58 the Appellate Assistant Commissioner determined the dividend income from the Pakistan company at Rs. 2,27,472/- and reduced the net loss accordingly. In second appeal the Income-tax-Appellate Tribunal confirmed the orders of the Appellate Assistant Commissioner. Thereafter, at the instance of the assessee the Appellate Tribunal referred the following questions in the two cases to the Delhi High Court for its opinion :

"1. Whether in the facts and in the circumstances of the case, the Tribunal was right in law in holding that the net dividend income of Rs. 2,30,832/- received from a Pakistan Company and the capital gains of Rs. 5,120/- were not deductible in arriving at the total world loss under S. 24(1)?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the net dividend income of Rs. 2,27,472/- received from a Pakistan company and the capital gains of Rs. 50,829/- were not deductible in arriving at the total world loss under S. 24(1)?"

4. The High Court answered the questions -relating to the Pakistan dividend in favour of the assessee and against the revenue.

5. So far as the question in each case refers to the deduction of capital gains against the total world loss for the year, learned counsel for the parties jointly state that it is not the subject-matter of these appeals.

6. It is necessary to mention at the outset that the Dominion of India and the Dominion of Pakistan concluded an Agreement for the Avoidance of Double Taxation of Income chargeable in the two Dominions in accordance with their respective laws, and in exercise of the powers conferred by S. 49AA of the Indian Income-tax Act 1922 and the corresponding provisions of the Excess Profits, Tax Act, 1940 and the Business Profits Act, 1947 the Government of India directed by Notification No. 28 dated December 10, 1947 that the provisions of the Agreement