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TMI Blog1967 (12) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary for implementing the agreement." The question posed in this appeal is in respect of the income assessment of the appellant for the assessment year 1947-48. The reason why section 49AA was inserted in the said Act, is as follows : Partition of British India in the year 1947 raised he problem as to how to avoid excessive or double taxation of assessees who had income in both the Dominions. This question has of course been rendered more acute by the separation of India and Pakistan into two separate sovereign States. In order to guard against the possibility of excessive or double taxation, section 49AA was introduced in the said Act. Section 49AA was amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948, and the words "or the United Kingdom" were inserted after the word "Pakistan" wherever appearing in the section. Thereafter, there was an agreement for avoidance of double taxation in India and Pakistan, entered into between the two countries (then two Dominions) and the said agreement was notified, on December 10, 1947. In this rule, we are concerned with articles IV, V and VI, of the said agreement which are set out below : " Article IV.--Each Dominion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce or Dominion in which category of transactions the income actually not mentioned accrues or arises. in any of the foregoing items of this Schedule. In this case, we are called upon to interpret the provisions of articles IV, V and VI of the said agreement. The language of the agreement is confused, inept and extremely difficult to decipher. It is, therefore, all the more necessary to have a judicial interpretation of it. In Commissioner of Income-tax v. Shanti K. Maheshwari, Tendolkar J. observes that in respect of the said agreement a cynic will say that the language has been employed to conceal the thoughts of its authors. This court has on numerous occasions commented on the manner in which legal drafting is being done. These comments have however fallen on deaf ears. In construing such a document, we can only do our best; the result may not be entirely satisfactory. It is necessary now to come. to the facts of this case. A bank called the Imperial Bank of India was constituted under the Imperial Bank of India Act (Act XLVII of 1920), and took over the undertakings of the then existing Presidency banks at Bombay, Madras and Calcutta. The said imperial Bank of India had num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as underlined by me in the extract set out above. Read literally, this is meaningless. In the Bombay case mentioned above, Commissioner of Income-tax v. Shanti K. Maheshwari, Tendolkar J. has held that this word "their" is a mistake and should read as "either". The learned judge was fortunate because both parties before him conceded that this must be so. In the court below, Banerjee J. was not so lucky because at that stage the parties did not concede the point, and as such, his Lordship had to determine judicially that the conclusion arrived at by Tendolkar J. was correct. We are, however, more fortunate, inasmuch as before us the parties have conceded that this must be so, and we shall therefore proceed to read the word "their" as "either" At least in one respect, the interpretation of the said agreement has been finally determined by the Supreme Court. In Ramesh R. Saraiya v. Commissioner of Income-tax it has been decided that under the said agreement it is the duty of each Dominion (now State) in the first instance, to make an asssssment in the ordinary way, regardless of the agreement. The restriction which has been imposed under the agreement was not on the power of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax in both the Dominions and has been so assessed. For example, in the present case, foreign income which accrued in Colombo and the United Kingdom was chargeable to tax in both the Dominions and this would come under article V. Let us now come to the method of computation under articles IV and V. I shall first take up article IV. I am confining myself to an assessment in the Indian Dominion. As I have stated above, the first thing to do is to make the assessment according to the said Act irrespective of the agreement. Having done so, the first question to ask is, has any income arising in either Dominion been taxed in excess of what has been laid down in the Schedule. Coming to the Schedule, we find that column 1 lays down the source of income or nature of transaction from which the income is derived. It is the second and third columns which lay down the percentage of income which each Dominion is entitled to charge under the agreement. Let us take item 7(a) which is as follows : " Source of income or Percentage of income which each Dominion Remarks. nature of transaction is entitled to charge under the from which income is Agreement. derived. " 7. (a) Goods purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f abatement to be allowed in India, is Rs. 13,88,543/3,20,71,256 the tax payable on the total income of the assessee in India. But the abatement that has to be allowed is not equal to this figure. We have next to ascertain the tax payable on the excess in the other Dominion, namely, in Pakistan. In order to do so we must necessarily know the total income of the assessee in Pakistan according to the Pakistan assessment and then calculate the "tax payable" in Pakistan in the same proportion, that is to say, as the excess bears to the total income of the assessee in Pakistan. The actual abatement that should be allowed is the lower of these two figures. I now come to article V. The calculation under this article is somewhat different. As I have stated above, this deals with any income accruing or arising without the territories of the Dominion where it is chargeable to tax in both the Dominions. In this case also, the "tax payable" in either Dominion has to be calculated according to the principle laid down under article VI, namely, the proportion which the doubly taxed income bears to the total income of the assessee in each Dominion. After this is ascertained, each Dominion shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what has to be done is to calculate one or the other figure for arriving at the amount of abatement that has to be allowed. If the excess is calculated on the Pakistan income as assessed in India, then abatement must be allowed upon the ratio that it bears to the total income assessed on the same footing. If, however, the Pakistan figure is taken into account, then abatement is to be allowed upon the entire calculation being based on that figure. It is only when we come to the comparison that we can and must consult the Pakistan figure to calculate the tax payable on the excess in Pakistan, and then take the lower of the two figures. This exigency, namely, that the Pakistan income as calculated in India and as calculated in Pakistan may be different, was probably not realised when the agreement was arrived at, and the time might have come to re-examine it in a new light. But, until that is done, we are of the opinion that the appellant is right in insisting that this figure of Rs. 10,37,085, which is the Pakistan income as assessed in Pakistan, cannot be used for purposes of calculating the abatement, inasmuch as the assessment in India has already been done on the footing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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