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HIGH COURT OF CALCUTTA
Sankar Prasad Mitra, A. N. Sen
COMMISSIONER OF INCOME-TAX - Appellant
Versus
CAREW AND CO. LTD. - Respondent
Income-Tax Reference 35 Of 1967
Decided On : JULY 8, 1971
INCOME TAX - Avoidance of Double Taxation - Agreement between India and Pakistan - Abatement of tax - Whether assessee entitled to abatement on entire manufacturing business income earned in Pakistan or only on net income after set-off of agricultural loss - Held, assessee entitled to abatement on entire manufacturing business income.
Fact of the Case:
The assessee, a resident of India, had business income and agricultural income in Pakistan. The Income-tax Officer allowed a set-off of agricultural loss against the manufacturing business profit in Pakistan and granted abatement of tax on the net income. The assessee contended that it was entitled to abatement on the entire manufacturing business income without set-off of agricultural loss.
Finding of the Court:
The Tribunal held that the assessee was entitled to abatement of tax under the Agreement for Avoidance of Double Taxation on the entire manufacturing business income earned in Pakistan during the relevant year.
Issues: Whether the assessee was entitled to abatement of tax under the Agreement for Avoidance of Double Taxation on the entire manufacturing business income earned in Pakistan or only on the net income after set-off of agricultural loss.
Ratio Decidendi: The Court held that agricultural income in Pakistan was not assessable in Pakistan under the Income-tax Act as adapted there and, therefore, could not have been the subject-matter of the Agreement for Avoidance of Double Taxation. The Court further held that the assessee's loss of income from agriculture had to be kept out of view in giving effect to the provisions of the Agreement. Therefore, the assessee was entitled to abatement on the entire manufacturing business income.
Final Decision: The Court answered the question in the affirmative and in favor of the assessee.
( 1 ) IN this reference under Section 66 (2) of the Indian Income-tax Act, 1922, we have to answer the following question of law:" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that relief should be given to the assessee on its Pakistan business income in accordance with the provisions of the Agreement for Avoidance of Double Taxation between the Government of India and Pakistan without setting off against it the loss in agricultural operations in Pakistan ? "
( 2 ) THE assessment year is 1956-57. The financial year is the year ending on June 30, 1955. Messrs. Carew and Co. Ltd. , the respondent herein, is resident in India having its registered office in Calcutta, Its sources of income are from : (a) business in India and interest earned in India on securities, (b) manufacturing business in Pakistan and (c) agricultural properties in Pakistan.
( 3 ) FOR the relevant year the respondent's Indian income as computed by the Income-tax Officer was Rs. 2,01,329 from business and Rs. 373 from interest on securities. The total of the two items was Rs. 2,01,702. The Pakistan income was computed by the Income-tax Officer in the assessment year as follows: Rs.
(i) Profit from manufacturing business in Pakistan 3,26,368
(ii) Loss from agriculture in Pakistan 3,20,839
Total 5,529
( 4 ) THE Income-tax Officer allowed a set-off of agricultural business loss of Rs. 3,20,839 against the manufacturing business profit of Rs. 3,26,368 in Pakistan which gave a net profit of Rs. 5,529. The Income-tax Officer also allowed statutory deduction of Rs. 4,500 from the above net profit of Rs. 5,529 as the entire foreign income which accrued in pakistan had not been remitted to India. Thus, the Income-tax Officer arrived at the income of Rs. 1,029 (Rs. 5,529 minus Rs. 4,500) from Pakistan. He further kept in abeyance a sum of Rs. 439'80 representing tax on account of Pakistan income included in the total income. Initially, the assessee asked for abatement of tax on Rs. 5,529 only being the difference between the profit from business and loss from agriculture arising in Pakistan. Thereafter, the company filed a revised return in which it claimed abatement of tax on Rs. 3,26,368 being the total business income from manufacture in Pakistan and wholly taxed there, together with the statutory deduction of Rs. 4,500 on the unremitted foreign income. The company in this revised return also claimed that out of its Indian business income. the whole of the loss from agriculture in Pakistan amounting to Rs. 3,20,839 should be excluded.
( 5 ) THE Income-tax Officer was of the view that the return as originally filed gave the correct manner of computation regarding abatement of tax to be allowed in respect of income arising in Pakistan. He, accordingly, took the net profit of Rs. 5,529 to be the income arising in Pakistan on which abatement of tax was to be granted. After deducting Rs. 4,500 as the statutory deduction for unremitted foreign income a sum of Rs. 1,029 was included in the assessee's income and abatement of tax in proportion to the rate under the Indian Income-tax Act granted to it.
( 6 ) BEFORE the Appellate Assistant Commissioner the assessee contended that the abatement was to be allowed, source or category-wise, and abatement of tax was available to the assessee on the entire income of Rs. 3,26,368 representing the manufacturing business income which was assessable cent. per cent. in Pakistan and nil in India. The assessee contended that the abatement of tax was allowable in respect of the entire manufacturing business income of Rs. 3,26,368 notwithstanding the fact that in computation of business income from Pakistan, a loss of Rs. 3,20,839 from agriculture in Pakistan was allowed by the Income-tax Officer.
( 7 ) THE Appellate Assistant Commissioner rejected the assessee's contentions. In the opinion of the Appellate Assistant Commissioner, article IV of the Agre
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