1979 (8) TMI 12 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was correct in holding that the Commissioner's order under section 263 of the Income-tax Act, 1961, was time-barred?
2. Whether the Tribunal was correct in determining that the Commissioner's order was wrong and illegal?

Analysis:

The case involves a company's assessment for the year 1947-48 where double I.T. relief was initially not allowed but later granted for income doubly assessed in Ceylon and the U.K. The issue arose when the claim for abatement under the India-Pakistan Double Taxation Avoidance Agreement was rejected by the ITO as time-barred, but later rectified to grant relief and refund. However, the Commissioner, under section 263 of the Income-tax Act, set aside the ITO's order and directed the recovery of a specific amount from the assessee based on doubly taxed income in the U.K.

The Tribunal allowed the assessee's appeal, questioning the Commissioner's order. The main contention was whether the ITO's decision on the abatement claim required a comprehensive working of the Pakistan Abatement and Double Income-tax Relief, as observed by the Commissioner. The relevant provisions of the India-Pakistan Agreement for Avoidance of Double Taxation were crucial in determining the correct approach.

According to the Agreement, each Dominion should assess income as per its laws, and any excess tax charged should allow for abatement based on specified conditions. The ITO's role was limited to determining the abatement on producing a certificate of assessment from the other Dominion, without modifying the total income or tax rate under the Agreement itself. The ITO's inclusion of double I.T. relief on U.K. income in the abatement calculation was deemed erroneous and beyond the scope of the Agreement.

The High Court found that both the ITO and the Commissioner erred in considering matters unrelated to the abatement claim, leading to an incorrect calculation of the refund and demand recovery. Consequently, the Court answered the second issue in favor of the assessee, rendering the first issue academic and declined to address it. The judgment concluded without any order as to costs, with agreement from both judges, Deb J. and R. N. Pyne J.