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TMI Blog1971 (7) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... n. For the relevant year the respondent's Indian income as computed by the Income-tax Officer was Rs. 2,01,329 from business and Rs. 373 from interest on securities. The total of the two items was Rs. 2,01,702. The Pakistan income was computed by the Income-tax Officer in the assessment year as follows : Rs. (i) Profit from manufacturing business in Pakistan ... 3,26,368 (ii) Loss from agriculture in Pakistan ... 3,20,839 -------------- 5,529 -------------- The Income-tax Officer allowed a set-off of agricultural business loss of Rs. 3,20,839 against the manufacturing business profit of Rs. 3,26,368 in Pakistan which gave a net profit of Rs. 5,529. The Income-tax Officer also allowed statutory deduction of Rs. 4,500 from the above net profit of Rs. 5,529 as the entire foreign income which accrued in pakistan had not been remitted to India. Thus, the Income-tax Officer arrived at the income of Rs. 1,029 (Rs. 5,529 minus Rs. 4,500) from Pakistan. He further kept in abeyance a sum of Rs. 439.80 representing tax on account of Pakistan income included in the total income. Initially, the assessee asked for abatement of tax on Rs. 5,529 only being the difference between the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer was justified in allowing abatement on this amount only. The Appellate Assistant Commissioner has also made some comments with regard to requisite certificate necessary to obtain an abatement but in this reference we are not concerned with those comments. The Appellate Tribunal, however, has accepted the assessee's contention that the assessee was entitled to abatement of tax under the said Agreement on the entire manufacturing business income of Rs. 3,26,368 earned in Pakistan during the relevant year. The Appellate Tribunal has observed as follows : " It must be borne in mind that the question is regarding abatement of tax and not of computation of the total income. Whereas in the latter only the net sum after adjustment of loss is to be taken for taxation purposes, in the former abatement of tax has to be granted on incomes which are taxed in both the countries. So far as the income from business was concerned, abatement is to be granted under the Agreement for Avoidance of Double Taxation and so far as relief in respect of taxed agricultural income is concerned, since that income is to be taxed as business income in India by reason of the definition of 'agricultural incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncomes accruing or arising outside the taxable territories. Sub-section (3) of this section is as follows : " If any person who is resident in the taxable territories in any year proves that in respect of his income which accrues or arises to him during that year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian Income-tax payable by him- (a) of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also ; or (b) of a sum calculated on that income at the Indian rate of tax ; whichever is less." Coming now to some of the provisions of the agreement for Avoidance of Double Taxation in India and Pakistan we find that Notification No. 28, dated 10th December, 1947, stated: " In exercise of the powers conferred by section 49AA of the Indian Income-tax Act, 1922......section 11A of the Excess Profits Tax Act, 1940......and section 18A of the Business Profits Tax Act, 1947.......as adapted by the India (Adaptation of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmined. This also implies that before determination of tax payable by the assessee whatever statutory relief is open to the assessee regarding the computation of tax has also to be given. According to the learned counsel, the question of granting abatement arises only after the completion of the assessment under each Dominion's laws. The abatement is equal to the lower amount of tax payable on the income charged actually in excess of the amount calculated according to the percentage specified in the Schedule to the agreement. The quantum of abatement is fixed by article VI. And under article VI the excess income cannot be considered apart from the total income. Counsel for the department has urged further that abatement is not an absolute right of the resident-assessee here. If the tax payable on the total income in Pakistan is not known at the time the assessment is made in India then the Indian tax authorities can demand the tax fully without allowing abatement but will hold in abeyance for one year or a longer period, according to the Income-tax Officer's discretion, the collection of a portion of the demand equivalent to the estimated abatement. If the assessee produces a cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as computation of income by the Indian Income-tax Officer is concerned, there is no dispute as to what was the assessee's business income from Pakistan and what was the assessee's agricultural loss in Pakistan. The dispute centres round the question of abatement under the Agreement for Avoidance of Double Taxation particularly under article IV thereof. Now, under the Income-tax Act as adapted in Pakistan, agricultural income arising in Pakistan could not be included in the assessee's income in Pakistan. The taxes which have been envisaged by the Agreement for Avoidance of Double Taxation, as we have seen from the relevant notification as well as article I of the Agreement are those imposed in India and in Pakistan by (a) The Income-tax Act, (b) The Excess Profits Tax Act and (c). The Business Profits Tax Act as adapted in the respective Dominions. It appears, therefore, that only income taxable under both the Dominions under any of the provisions of the said Acts as adapted in the respective Dominions can come within the scope of this Agreement. And since " agricultural income " in Pakistan is not assessable in Pakistan under the Income-tax Act as adapted there it could no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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