TMI Blog1981 (9) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 1963-64 and 1964-65. The assessee, which is a cement manufacturing company, had, during the relevant assessment years, two of its 16 cement factories in Pakistan, which were ultimately closed down and sold off in 1965. However, for the concerned assessment years the assessee's income from the said factories in Pakistan was required to be included in its assessment in India for computing its world income. The ITO computed such income of the assessee in Pakistan at Rs. 73,18,580 and estimated the income-tax at Rs. 34,33,227 as payable thereon. The ITO, in view of the provisions of art. VI(b) of the Agreement for Avoidance of Double Taxation between India and Pakistan, observed in his order: " For collection of taxes, the tax on the above Pakistan income will be kept in abeyance for avoidance of double taxation between two countries for a period of one year, within which necessary claim papers and documents should be filed by the company so that D.T.A. relief could be worked out and allowed to it." Paragraph I of the notice of demand under s. 156 of the Act by the ITO stated : " This is to give you notice that for the assessment year 1964-65, sum of Rs. 2,46,89,251, detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the total demand raised on the regular assessment and not against a portion of such demand. According to the AAC's interpretation of the said art. VI(b) where, at the time of assessment of the assessee's income in India, the tax payable on the assessee's total income in Pakistan was not known, the ITO in India where the assessment had first taken place, shall make a demand on the assessee without allowing abatement, in this case the gross demand being Rs. 2,46,89,251, and, after giving credit for tax deducted at source, under s. 199 and/or advance tax paid under s. 219 of the Act, if there was any demand left and if such demand were less than the demand for estimated abatement, the collection of estimated demand was to be kept in abeyance, which in this case was Rs. 11,25,012. He, therefore, confirmed the order of the ITO. Against the said order of the AAC an appeal was preferred to the Tribunal. Before the Tribunal the very same contentions were raised by the learned counsel for the assessee. The Tribunal accepted the contentions raised by the learned counsel for the assessee and set aside the order passed by the ITO as confirmed by the AAC. For doing so the following re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 to 213 exceeds the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year. The interest that was claimable by the assessee, therefore, was on the excess of the advance tax over the tax determined on regular assessment. In this case as the order of the ITO shows that on the total world income of the assessee including its income in Pakistan as determined by the ITO at Rs. 73,13,550, the gross demand for tax for the year 1964-65 was determined at Rs. 2,46,89,215, while the tax on Pakistan income was estimated at Rs. 34,33,227, and the advance tax paid by the assessee under s. 18A was Rs. 2,35,64,239.84. However, since the assessee's income in Pakistan was to be taken into consideration for the assessment in India of its world income, the provisions of the Agreement for Avoidance of Double Taxation between India and Pakistan were applicable in this case. Articles IV, V and VI(a) and (b) of the said Agreement provided as follows : "Article IV.-Each Dominion shall make assessment in the ordinary way under it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in respect of tax paid by him in Pakistan, before a determination of its tax on regular assessment in India and in such a case the tax determined on the assessment in India was to be, such as arrived at after taking into consideration such abatement. In such a case even if the assessee had or had not paid any advance tax, the abatement to which the assessee was entitled, was to be adjusted against the gross demand, i.e., tax determined on regular assessment and, not against the tax liability arrived at after first adjusting the advance tax, if any, against the tax determined on assessment. The afore-quoted art. VI(b) appears to have been introduced to meet with a situation, where at the time of completion of the assessee's assessment in India, the tax payable by the assessee on its total income in Pakistan was not known and, therefore, the assessee was not in a position to claim abatement in tax determined in India as he could do under the said arts. IV and V. In the case contemplated under the said art. VI(b), the ITO was required to estimate the abatement to which the assessee was entitled by computing tax payable on the assessee's income in Pakistan but not to allow a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which he had no power to do. In our view, therefore, on a proper reading of the said art. VI(b) the view taken by the AAC that under the said art. VI(b) what was held in abeyance was only the collection of the portion of the demand which would be the demand arrived at after adjusting the advance tax by the assessee against the gross demand, would be against the proper interpretation and the main object of the said provision, and the same cannot be accepted. We would, therefore, agree with the reasoning and the view taken by the Tribunal that for the working of art. VI(b), the ITO in making demand on the assessee ought to have first deducted from the gross demand of Rs. 2,46,89,251 the estimated abatement of Rs. 34,33,227 and thereafter against the balance of Rs. 2,12,56,024 adjusted the advance tax of Rs. 2,35.64,230.84. If that were done then the assessee would have been entitled to a refund of Rs. 23,08,215.87 being the excess. If, therefore, the assessee were entitled to the said refund, then the next question was whether he was entitled to interest on the same under s. 214(1) and (2) of the Act. In this case the assessee had made the advance payment on April 1, 1964. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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