TMI Blog1980 (4) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... as " DTAA ") under s. 49A of the Indian I.T. Act, 1922, corresponding to s. 90 of the I.T. Act, 1961, an abatement in tax is to be allowed in terms of arts. IV and VI of the said agreement on the excess calculated on a certain basis. According to item No. 7(b) of the Schedule to the DTAA, in regard to the income derived by the assessee from the said two factories in Pakistan, the following was the position and the modus operandi of relief : (1) Pakistan was entitled to charge to tax 100% of the said income. (2) No portion of the said income was chargeable to tax in India. (3) Hence, under the operation of the Indian laws, India in the first instance would charge to tax income from the above source the whole of which was in excess. (4) India has thereupon to allow abatement under art. IV, equal to the lower amount of tax payable on such " excess " in India or Pakistan as provided in art. VI. (5) As per art. VI, the tax payable in India or Pakistan on the " excess " shall be such proportion of the tax payable in each country as the " excess " bears to the total income of the assessee in each country. The ITO as well as the AAC considered the " excess " for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court: " 1. Whether, on the facts and in the circumstances of the case, for the purposes of abatement in tax to be allowed in India with reference to the " excess " in terms of article VI(a) of the Double Taxation Avoidance Agreement between India and Pakistan, the Pakistan income derived from the factories in Pakistan is to be taken as determined and included in the Indian assessment under the Indian laws or as assessed in Pakistan as per the Pakistan laws for the assessment years 1960-61, 1961-62 and 1962-63 ? 2. Whether the Income-tax Officer in India is competent to determine the income from sources in Pakistan for purposes of the Indian assessment ? " The short question that falls for our consideration is whether the basis for determining the " excess " adopted by the Tribunal under art. IV of the said agreement, viz., DTAA, is correct. It may be mentioned here that actually the further question with regard to the working out of the figure of abatement or rebate under art. VI of the said agreement does not fall for consideration in the present case. Shri Kolah, the learned counsel for the assessee, relied upon two decisions, one of this court and the other of the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed under the said article. The next thing that has to be done under the said article is to look at the source or category of transactions specified in col. 1 of the Schedule to the said agreement, which has been brought to tax in the taxable territories. If there is such a source, one has to look to the Schedule to find out what was the percentage of income from this source which India was entitled to charge under the agreement, and if the income from this source which has been subjected to tax exceeds such percentage, then there is an " excess for the purpose of art. IV. The third part of the said art. IV is that in respect of such " excess " abatement has to be allowed. The quantum of the abatement is then expressed in the concluding words of the said article and those words are " equal to the lower amount of tax payable on such excess in their Dominion as provided for in article VI ". As has been stated earlier we are really not concerned in the present case with the calculation of the abatement or rebate as per art. VI. It is, therefore, not necessary to discuss the implications of art. VI(a) which has been reproduced hereinabove. There is nothing in this judgment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apportion income from various sources among the two Dominions. In the case of dividends, each Dominion is entitled to charge " in proportion to the profits of the company chargeable by each Dominion under this agreement ". For, if no assessment could be made on the amount on which abatement is to be allowed, there could be no question of making demand without allowing the abatement and holding in abeyance for period the collection of a portion of the demand equal to the estimated abatement. This decision has in terms referred to the aforesaid decision of this court, and in this decision also we do not find anything to suggest that while calculating " excess " under the said art. IV, it is the Pakistan income determined under the Pakistan laws which has to be taken into consideration and not the said income as determined according to the Indian laws. We are, therefore, unable to understand the reliance placed on this authority by Shri Kolah to support his contention to the contrary In addition to the said two authorities, there is the decision of the Calcutta High Court in ITO v. State Bank of India [1968] 69 ITR 833 which is relied upon by the Tribunal and which, as conceded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stan, 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 ....... the Pakistan income as assessed in Pakistan cannot be used for purposes of calculating the abatement..." With respect, we agree with the aforesaid observations made in the said decision, which support the case of the revenue in our present case and negative the case of the assessee, as has been rightly held by the Tribunal. The result, therefore, is that the Tribunal's finding that in calculating the " excess " in the present case under art. IV of the DTAA, it is the income arising from the said two factories in Pakistan as calculated in India according to the Indian laws which has to be taken into consideration is correct and stands. Our answer, therefore., to the two questions referred to us is as follows : Question No. 1 :-That for the purposes of abatement in tax to be allowed in India with reference to the " excess " in terms of the said art. IV of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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