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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 ..... Government may enter into an agreement with Pakistan for the avoidance of double taxation of income, profits and gains under this Act and under the corresponding law in force in Pakistan, and may, by notification in the official Gazette, make such provision as may be necessary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with item 9 only thereof which is set out below : " 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. 9, Any income derived 100 per cent. by the Nil by the other from a source 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is necessary to interpret the provisions of articles IV, V and VI of the said agreement which are set out above. Before we proceed further, there is one aspect of the matter which has to be disposed of. In article IV, the word "their" appears between the words "in" and "Dominion" 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 Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under its own laws in excess of the amount calculated according to the percentage specified in columns 2 and 3 thereof. This has been designated as "excess". Article V, however, deals with the case where any income accruing or arising outside the territories of the two Dominions is chargeable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proportion of the tax payable in each Dominion as the excess bears to the total income of the assessee in each Dominion. We have already found that the excess calculated under article IV is Rs. 13,88,543. The total income is Rs. 3,20,71,256. Therefore, the "tax payable" on the excess, for purposes of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily be governed by the Pakistan figures. The two figures of income as assessed in India and Pakistan might have tallied immediately at the time of separation but this may not continue to be so, particularly as the law for deductions, etc., in Pakistan may not continue to be the same as in India. Therefore, 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, un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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