Viscount Dilhorne (delivering the majority judgement):

Section 10(1) of the Income Tax Ordinance, 1947, of Malaya provided that income tax should be payable

upon the income of any person accruing in or derived from the Federation or received in the Federation from outside the Federation . . . .

and s. 45 of that Ordinance, as amended in 1948, provided that:

If the High Commissioner in Council by Order declares that arrangements specified in the Order have been made with the Government of any territory outside the Federation with a view to affording relief from double taxation in relation to tax under this Ordinance and any tax of a similar character imposed by the laws of that territory, and that it is expedient that those arrangements should have effect, the arrangements shall have effect in relation to tax under this Ordinance notwithstanding anything in any written law.

This provision was later amended to enable the Yang di-Pertuan Agong to exercise the powers it gave to the High Commissioner in Council, and in their exercise he made the Double Taxation Relief (Republic of Singapore) Order, 1966. Scheduled to that Order was an Agreement made between the Republic of Singapore and Malaysia and it is not disputed that the arrangements set out in that Agreement are to have effect notwithstanding any written law.

The Income Tax Ordinance, 1947, was repealed and replaced by the Income Tax Act, 1967, which by s. 3 made a very considerable extension to the liability of a person resident in Malaysia to income tax. It provided that he should be chargeable to tax "upon his income from wherever derived".

The appellant, a company incorporated and resident in Malaysia, had in 1968 an income of $31,415 derived in Malaysia and had suffered a loss in that year of $538,335 on the operations of its branch in Singapore.

The question to be determined in this appeal is whether in computing the appellant's chargeable income for 1968, that loss is to be ignored or brought into account. The Special Commissioners of Income Tax held that it could be brought into account. The High Court and the Federal Court of Malaysia held that it could not.

It was common ground that, were it not for the arrangements scheduled to the Double Taxation Relief Order of 1966, the appellant would have been entitled to set off the losses incurred by its Singapore branch against its income for the purpose of determining its liability to Malaysian income tax. Is there anything in those arrangements which prevents that being done? If there is, that must override the 1967 Act.

Article IV of the arrangements scheduled to the Double Taxation Relief Order of 1966 provides inter alia, as follows:

1. (a) The profits of a Malaysian enterprise shall be taxable in Singapore unless the enterprise carries on business in Singapore through a permanent establishment situated in Singapore. If the enterprise carries on business as aforesaid, tax may be imposed in Singapore on the profits of the enterprise but only on so much of them as is attributable to that permanent establishment. No further tax shall be imposed in Malaysia in respect of profits of the permanent establishment which are remitted to Malaysia.

(b) [A similar provision with regard to a Singapore enterprise.]

2. Where an enterprise of one of the Contracting States carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing independently with the enterprise of which it is a permanent establishment.

3 In determining the profits of a permanent establishment, there shall be allowed as deductions all expenses, including executive and general administrative expenses, which would be deductible if the perman