granting stay of recovery of tax under sub-section (7) to assessees having income in Pakistan which cannot be brought into India stands withdrawn - Income Tax - 25/1969

Circular No. 25 Dated 25/7/1969 Circular dated 25-7-1969 granting stay of recovery of tax under sub-section (7) to assessees having income in Pakistan which cannot be brought into India stands withdrawn 1. Reference is invited to the Boards Circular No. 25 issued under its F. No. 9/20/68-IT(A-II), dated 25-7-1969 [Annex]. Para 2(a) of the said circular relating to sub-section (7) of section 220 reads as under : The Income-tax Officers ask the assessees to pay tax on their Indian income at the rate applicable to the total income which includes income arising in Pakistan. Thus, if the Indian income is Rs. 10,000 and the Pakistan income is Rs. 1,00,000, the assessee is required to pay several times more tax than what he would have been required to pay had there been no income at all in Pakistan. The tax demanded by the Income-tax Officer is, thus, disproportionate to the assessees ability to pay having regard to his income in India. Under the circumstances, the Board have decided that assessees having income in Pakistan which cannot be brought into India, should be asked to pay tax only on the Indian income by treating it as the total income for the purposes of the Income-tax Act. The balance of the tax should be stayed by the Income-tax Officer under section 220(7). 2. In the case of A.C. Paul v. TRO [1979] 117 ITR 412, the Madras High Court had occasion to interpret sub-section (7) of section 220 as also to examine the scope and the correctness of the portion of the Boards Circular extracted in the preceding paragraph. The observations of the High Court thereon are reproduced below : We have no hesitation whatever in concluding that the method to be adopted is by finding out the average rate of tax applicable on the total income determined by the assessing authorities [i.e., the tax finally determined after and appeals and references, if any, for the concerned years are disposed of] by dividing the total tax so imposed by the total income. That average rate will have to be applied to the Indian income and the tax that can be collected will be the tax so calculated on the Indian income. There is no case before us that that has not been the method adopted in determining and demanding the tax due on the Indian income. So there can be no complaint that the amount claimed as due from the assessee was not the amount that can be claimed in accordance with the provision in section 220(7). We shall now turn to the second aspect.... We have already extracted the relevant and the emphatic part of that circular and we should repeat the words of that part. It is stated there that the tax on the Indian income must be determined by treating the Indian income as the total income of the assessee and only that amount of tax should be recovered from the assessee. We are constrained to say that this direction by the Central Board of Direct Taxes is a direction diametrically opposed to the statutory provision, a direction which we are unable to support on the basis of any provision under the Act or Rules and we fail to understand how the Board issued such a circular. Even so, we are not called upon to quash that circular and we cannot quash that circular because that circular in no manner can be said to have caused any grievance to the petitioner excepting perhaps the disappointment that what the assessees, if they had income in Pakistan, would have got, he did not get. Such a disappointment we cannot treat as grievance for the purpose of article 226 of the Constitution. 3. It has been decided by the Board that there is no justification for giving a concession which is not warranted by law. Accordingly, para 2(a) of Circular No. 25 [F. No. 9/20/68-IT(A-II)], dated 25-7-1969 [Annex] is withdrawn with immediate effect and the said circular will stand modified to that extent. 4. The contents of this circular may please be brought to the notice of all concerned. Existing cases where taxes relating to Pakistan income have been stayed under section 220(7) may also be reviewed and necessary action taken in the light of this circular. Circular : No. 251 [F. No. 403/56/77-ITCC], dated 29-1-1979. Annex Circular No. 25, dated 25-7-1969 referred to in clarification 1. Instances have come to the notice of the Board where Indian nationals, having income in Pakistan were put to considerable hardship in their assessment proceedings in India. After the 1965 hostilities between India and Pakistan, the assessees having income in Pakistan, are finding it almost impossible to repatriate their Pakistan income to India. 2. The hardships faced by such assessees are generally of the following types : 1. The Income-tax Officers ask the assessees to pay tax on their Indian income at the rate applicable to the total income which includes income arising in Pakistan. Thus, if the Indian income is Rs. 10,000 and the Pakistan income is Rs.1 lakh, the assessee is required to pay several times more tax than what he would have been required to pay had there been no income at all in Pakistan. The tax demanded by the Income-tax Officer is, thus, disproportionate to the assessees ability to pay having regard to his income in India. Under the circumstances, the Board have decided that assessees having income in Pakistan which cannot be brought into India, should be asked to pay tax only on the Indian income by treating it as the total income for the purposes of the Income-tax Act.The balance of the tax should be stayed by the Income-tax Officer under section 220(7). 2. In some cases, it has been found that the tax on the Pakistan income was kept in abeyance for a period of only one year and thereafter the recovery proceedings were started even though the Pakistan income had not yet been brought into India. Thus, the provisions of section 220(7) were not applied properly. 3. It has also been seen in some cases that when the assessees having income in Pakistan expressed their inability to produce the assessment orders passed in their cases by the Pakistan income-tax authorities, the Income-tax Officers made assessments which prima facie appears to be rather harsh and unrealistic. The Board disapprove of the tendency to pitch up the assessments in such cases. It is, therefore, desired that the assessment of the Pakistan income should be made on the basis of the audited profit and loss account and balance sheets duly certified by the chartered accountants but even when these statements are not available, the estimates should be fair and reasonable.