1971 (8) TMI 1 - SC - Income Tax

Assessee s boats requisitioned by Government - traffic originated from Pakistan - hire charges received by the assessee - income from transport of ships or income falling under residuary clause - agreement for avoidance of double taxation of income between India and Pakistan did not make any distinction between hire and freight - hire received for the boats requisitioned by the Government clearly held within the scope of item 5(g)

Summary

Issues:
1. Interpretation of the Agreement for the Avoidance of Double Taxation between India and Pakistan.
2. Taxability of income derived from transport services under the Agreement.

Detailed Analysis:

The case involved an appeal under section 66A(2) of the Indian Income-tax Act, 1922, arising from a decision of the High Court of Calcutta. The primary issue revolved around whether the income received by the assessee from the charter of boats requisitioned by the Government, amounting to Rs. 3,43,138, was taxable in India. The High Court, concurring with the Tribunal, answered in the affirmative, leading to the appeal by the department.

The assessee operated river boats before the partition of India and received income from the charter of boats during the assessment year 1947-48. The key question was whether the income derived from the boats, originating in what is now Pakistan, could be taxed in India. The Agreement between India and Pakistan aimed to avoid double taxation, specifying different percentages for taxation based on the source of income or nature of transactions.

The Income-tax Officer initially held the income as earned in the Indian Dominion and taxable in India under item 9 of the Agreement. However, the Tribunal disagreed, stating that the income fell under item 5(g) of the Agreement, pertaining to transport services originating in a specific Dominion. The High Court, aligning with the Tribunal, upheld this interpretation, rejecting the department's argument distinguishing between "hire" and "freight."

The Supreme Court analyzed the provisions of the Agreement and concluded that the income from the charter of boats fell within item 5(g) concerning transport services by ships, air, or road. As the traffic originated in what is now part of Pakistan, the income was not taxable in India under the Agreement. Therefore, the Court affirmed the High Court's decision, dismissing the appeal with costs.

In summary, the judgment clarified the interpretation of the Agreement for the Avoidance of Double Taxation between India and Pakistan regarding the taxability of income derived from transport services. The Court held that the income from the charter of boats, originating in Pakistan, was not taxable in India under the specific provisions of the Agreement, aligning with the Tribunal and High Court's findings.