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Issues Involved:
1. Justification of disallowance of interest on bank overdraft and debenture loan allocated to the Pakistan branch by the assessee-company for the assessment years 1960-61, 1961-62, and 1962-63. Issue-Wise Detailed Analysis: 1. Justification of Disallowance of Interest: The core issue revolves around whether the Tribunal was justified in upholding the disallowance of Rs. 3,32,158, Rs. 3,79,290, and Rs. 3,64,760, representing interest on bank overdraft and debenture loan allocated to the Pakistan branch by the assessee-company for the assessment years 1960-61, 1961-62, and 1962-63, respectively. Background: The assessee, an Indian company with its registered office in Calcutta, carried on business in both India and Pakistan. The financial arrangements, including the interest on debentures and overdrafts, were managed from the head office in Calcutta. The interest amounts in question were allocated to the Pakistan branch and claimed as deductions in India. Income-tax Officer's Findings: The Income-tax Officer disallowed the interest deductions claimed in India on the grounds that these amounts were also claimed in Pakistan and were under dispute there for not having tax deducted at source. The officer held that allowing such deductions in India would result in double claims for the same interest. Appellate Assistant Commissioner's Decisions: - For assessment years 1960-61 and 1961-62, the Appellate Assistant Commissioner allowed the deductions, finding that the interest was paid by the head office for the entire business. - For the assessment year 1962-63, the then Appellate Assistant Commissioner disallowed the interest, noting that the assessee was claiming the same deduction in both India and Pakistan, which would result in double benefits. Tribunal's Conclusion: The Tribunal upheld the disallowance, referencing the agreement for avoidance of double taxation between India and Pakistan. It concluded that the assessee was attempting to circumvent the agreement by treating the business as a single entity, despite the separate assessments by Pakistan authorities. Arguments by Assessee's Counsel: The assessee's counsel argued that the business was a single entity, and under sections 10(2)(iii) of the Indian Income-tax Act, 1922, and section 36(1)(iii) of the Income-tax Act, 1961, the interest on borrowed capital for the business should be deductible irrespective of its allocation. Cited Precedents: - Commissioner of Income-tax v. C. Parakh & Co. (India) Ltd.: The Supreme Court held that for a business carried on at multiple locations, the net profits should be pooled, and expenses deducted collectively, emphasizing a single business entity. - Commissioner of Income-tax v. Somasundaram Chettiar: The Madras High Court held that interest on borrowed money used at a foreign branch could be disallowed as the business taxed was only the Indian part, not the foreign branch. Revenue's Argument: The revenue contended that the businesses in India and Pakistan were separate, with separate accounts, and the capital used in Pakistan should not be deductible in India. Court's Analysis: The court distinguished the present case from the Madras High Court case, noting that the business was managed and controlled from Calcutta, indicating a single business entity. The court found that the principles laid down by the Supreme Court in Parakh's case applied, where the entire business was considered a single entity for tax purposes. Judgment: The court concluded that the assessee was entitled to the deductions for the interest paid, as the business was a single entity managed from Calcutta. The deductions should be available against the entire income of the assessee, including income arising within India. Final Decision: The court answered the question in the negative, in favor of the assessee, and clarified that the deductions claimed should be allowed against the entire income, not just the income from the Pakistan branch. There was no order as to costs. Concurring Judgment: The concurring judge agreed with the analysis and conclusion. This comprehensive analysis covers the relevant issues, legal arguments, and the court's reasoning, maintaining the original legal terminology and significant phrases.
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