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Issues:
Interpretation of Indo-Pakistan Agreement for avoidance of double taxation - Assessment of income derived from money lent at interest and brought into Pakistan - Applicability of specific clauses under the agreement. Analysis: The judgment pertains to the assessment year 1949-50 involving M/s. Soorajmull Nagarmull, a firm acting as the managing agent of two sugar mills in East Pakistan. The primary issue was the treatment of income derived from money lent at interest and brought into Pakistan. The Income Tax Officer (ITO) initially held that no allocation of income to Pakistan was necessary due to a net debit balance in the interest account and the location of fund advances in Calcutta. The Appellate Assistant Commissioner (AAC) calculated the income derived in Pakistan at Rs. 1,00,000 based on specific provisions of the Agreement for avoidance of double taxation between India and Pakistan. The Tribunal upheld the AAC's decision, emphasizing the clear application of clause 5(f) of the Agreement, entitling Pakistan to charge 100% of the income in such cases. The crux of the matter revolved around the interpretation of the Indo-Pakistan Agreement and the specific clauses applicable to the case. The Tribunal rejected the revenue's argument that the transactions were complete in Calcutta, emphasizing that the intention was to lend money to companies in East Pakistan for their development. The Tribunal found that the income derived from money lent on interest and brought into Pakistan fell under clause 5(f) of the Agreement, entitling Pakistan to claim 100% of the income. This decision was based on the understanding that the funds were intended for the management and development of companies in East Pakistan, aligning with the provisions of the Agreement. The judgment clarified that the specific purpose of the fund transactions, despite occurring in Calcutta, was to benefit the companies in East Pakistan, justifying the applicability of clause 5(f) of the Agreement. The Court held in favor of the assessee, affirming that the income derived from money lent at interest and brought into Pakistan should be assessed in accordance with the provisions of the Agreement. The decision was unanimous, with both judges concurring on the interpretation and application of the relevant clauses. In conclusion, the judgment provides a detailed analysis of the application of the Indo-Pakistan Agreement for avoidance of double taxation in determining the income derived from fund transactions between India and Pakistan. It underscores the importance of interpreting specific clauses within the Agreement to ascertain the appropriate jurisdiction entitled to charge the income, based on the nature and purpose of the financial transactions involved.
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