1967 (5) TMI 16 - HC - Income Tax

Assessee, Bengal River Service Company Limited, was, at the material time, carrying on the business of plying of river boats - Whether the amount received by the assessee was derived from a source or category of transaction mentioned in item 5(g) of the Schedule to the Agreement for the Avoidance of Double Taxation of Income between India and Pakistan - Held, yes

Summary

Issues Involved:

1. Whether the amount of Rs. 3,43,138 received by the assessee was derived from a source or category of transaction mentioned in item 5(g) of the Schedule to the Agreement for the Avoidance of Double Taxation of Income between India and Pakistan.
2. If the answer to the above question is negative, whether the aforesaid sum fell under item 9 of the Schedule to the aforesaid Agreement.

Issue-wise Detailed Analysis:

Issue 1: Applicability of Item 5(g) of the Schedule to the Agreement for Avoidance of Double Taxation

The assessee, Bengal River Service Company Limited, was engaged in the business of plying river boats. During the assessment year 1947-48, certain vessels belonging to the assessee were requisitioned by the Government of India on a charter basis. The Income-tax Officer assessed the income from vessel hire as income earned in India and applied item 9 of the Schedule to the Agreement for Avoidance of Double Taxation between India and Pakistan. The assessee contended that the income should be taxed under item 5(g) of the Schedule, which pertains to transport (ships, air, road) and allows 100% tax by the Dominion in which the traffic originates.

The Tribunal found merit in the assessee's argument, stating that the requisition did not change the nature of the business, which remained transport by ship. The Tribunal directed that the income should be categorized under item 5(g). The High Court upheld this view, stating that the requisition did not alter the nature of the business, and the income should continue to be governed by item 5(g). The Court emphasized that the business of the assessee prior to requisition was transport by ship, and the requisition did not introduce any change in the nature of the business.

Issue 2: Applicability of Item 9 of the Schedule to the Agreement for Avoidance of Double Taxation

Given the affirmative answer to the first question, the second issue became moot. The High Court did not find it necessary to address whether the income fell under item 9 of the Schedule, as the income was already deemed to be covered by item 5(g).

Conclusion:

The High Court concluded that the income of Rs. 3,43,138 received by the assessee was derived from a source or category of transaction mentioned in item 5(g) of the Schedule to the Agreement for the Avoidance of Double Taxation between India and Pakistan. Consequently, the second question did not require an answer. The assessee was entitled to costs of the reference.