Indian Nationals having income arising in Pakistan--Collection of tax--Clarification regarding - Income Tax - 251/1979

Indian Nationals having income arising in Pakistan--Collection of tax--Clarification regarding Circular No. 251 Dated 29/1/1979 To All Commissioners of Income-tax. Sir, Subject : Indian Nationals having income arising in Pakistan--Collection of tax--Clarification regarding. Reference is invited to Board's Circular No. 25 issued under its F.No. 9/20/68-ITA-II dated 25th July, 1969.* 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 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 assessee's 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 [Writ Petition No. 359 of 1975] ([1979] 117 ITR 412 (Mad), the Madras High Court had occasion to interpret sub-section (7) of section 220 of the Income-tax Act, 1961, as also to examine the scope and the correctness of the portion of the Board's Circular extracted in the preceding paragraph. The observations of the High Court thereon are reproduced below ([1979] 117 ITR 412, 418 (Mad)): "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 determind after the 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. 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 provision in section 220(7) of the Act... 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 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 CBDT 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 a 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 laws. Accordingly, para. 2(a) of Circular No. 25 (F. No. 9/20/68-ITA-II dated the 25th July, 1969--See [1969] 73 ITR (St.) 23) 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. Yours faithfully, (Sd.) H. Venkataraman, Secretary, Central Board of Direct Taxes. * See [1969] 73 ITR (St.) 23.