Case: C.I.T., West Bengal Iii, Calcutta Vs. Carew &amp; Co. Ltd

Carew & Company Ltd., the respondent in this appeal, was resident in India having its registered office in Calcutta. The concerned assessment year is 1956-57. The corresponding previous year of the company ended on June 30, 1955. During the relevant period the sources of income of the respondent-company were from, (a) business in India and interest earned in India on securities; (b) manufacturing business in Pakistan; and (c) agricultural properties in Pakistan. For the relevant year the assessees Indian income as computed by the ITO 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 profit from the assessees manufacturing business in Pakistan was computed at Rs. 3, 26, 368. In respect of the agricultural property, however, there was loss and it was determined at Rs. 3, 20, 839. The ITO deducted by way of set off the agricultural loss of Rs. 3, 20, 839 against the profit of the manufacturing business amounting to Rs. 3, 26, 368. The net profit of the assessee thus determined in respect of the two sources in Pakistan was Rs. 5, 529. Deducting the statutory figure of Rs. 4, 500 from the above net profit of Rs. 5, 529, he gave the company relief against double taxation on the figure of Rs. 1, 029 only. Initially, the assessee asked for abatement of tax on Rs. 5, 529 but subsequently by filing a revised return it claimed abatement on the entire profit from its manufacturing business in Pakistan, i.e., Rs. 3, 26, 368 claiming at the same time a set off of the whole amount of Rs. 3, 20, 839 from the total income determined in India. The AAC affirmed the decision of the ITO, as in his opinion, art. IV of the Agreement permitted relief only on the amount of net profit of Rs. 5, 529 from which, of course, the statutory deduction of Rs. 4, 500 had to be made. The assessee-company, however, succeeded when it took the matter in second appeal to the Appellate Tribunal. It was held by the Tribunal that the assessee was entitled to abatement of tax under the Agreement on the entire profit from manufacturing business earned in Pakistan during the relevant year. Since the agricultural income of the assessee in respect of its agricultural properties in Pakistan was to be treated as taxable income in India the loss was allowable under the Indian I.T. Act, 1922, (hereinafter called " the Act "). The final conclusion drawn by the Tribunal was in these terms" Now, therefore, the position is that the assessee has :(1) income from business in Pakistan, which is taxed 100 per cent. there; (2) loss in agriculture, which is not taxed there. Therefore, whereas relief has to be given on the taxed business income in Pakistan under the aforesaid Agreement for Avoidance of Double Taxation, no question of relief arises on the loss in agricultural income. In this view of the matter, the rebate granted only on the difference between the business profit and agricultural loss in Pakistan amounts to negation of the assessees right to receive abatement of tax on income taxed in PakistanIn our opinion, therefore, income-tax relief has to be given on the Pakistan business income in accordance with the provisions of the aforesaid agreement without setting it off against the agricultural loss.the instance of the CIT, Bengal, the Tribunal referred the follow- ing question of law to the High Court for itsWhether, on the facts and in the circumstances of the case, the Tribunal was right in holding that relief should be given to the assessee on its Pakistan business income in accordance with the provisions of the Agreement for Avoidance of Double Taxation between the Governments of India and Pakistan without setting off against it the loss in agricultural operations in Pakistan ?agreement with the conclusions arrived at by the Appellate Tribunal, the High Court answered the references in favour of the assessee. Hence, this appeal by the department

Court's reasoning:
If there were no differences in the phraseology of s. 49D(1) of the Act and art. IV of the Agreement the view expressed by the High Court could have been successfully challenged. But the view of the High Court oil interpretation of arts. IV and VI of the Agreement is quite correct and I approve of the same. I have already said that the question of giving double taxation relief in case of agricultural income in Pakistan could only be dealt with under sub-s. (3) of s. 49D of the Act and not under the Agreement. It is significant to note that in art. IV the wordings are " where either Dominion under the operation of its laws charges any income from sources or categories of transactions specified in col. 1 of the Schedule to this Agreement ". (Emphasis supplied).It would be seen further that the various items in the Schedule clearly indicate that if the sources or categories of transactions are to be clubbed together and not treated separately, then it will be difficult, almost impossible, to give effect to the Agreement with reference to the Schedule. To illustrate my view point, I may take cl. (g) of item 7 providing that in the case of metal ores, minerals, etc., extracted in one Dominion and sold in the other without any further manufacturing process and without selling establishment or a regular agency 75 per cent. of the profits is to be charged by the Dominion in which minerals are extracted and 25% by the Dominion in which goods are sold. Although in the Dominion in which the goods are sold it would be the assessees income from business; under the Agreement the profit chargeable to tax in a particular Dominion has to fit in by a separate calculation under item 7 (g)On a careful consideration of the matter, I have come to the conclusion that the assessee was entitled to the relief against double taxation in accordance with the Agreement leaving out of consideration the figure of loss of Rs. 3, 20, 839 incurred in its agricultural activities in Pakistan albeit the said loss had to be taken into account and adjusted against the assessees profit in India.scheme of the Agreement, it would be noticed, is quite different and distinct from what is provided for in sub-s. (1) of s.could not be and was not disputed that while computing the total income of the assessee, the income or the loss, as the case may be, from agricultural property in a foreign country had to be added to or adjusted in the assessees total income. Obviously it will be an income from other sources within the meaning of cl. (v) of s. 6 of the Act. So also the assessees income from business in Pakistan had to be added to the figure of his profits and gains of business in India. The statutory deduction of Rs. 4, 500 had to be granted under the third proviso to s. 4(1) of the Act. The exclusion of agricultural income as mentioned in cl. (viii) of sub.s. (3) was to be granted only if it was an agricultural income as defined in s. 2(1). Otherwise not The Calcutta High Court in the case of Kumar Jagadish Chandra Sinha v. CIT [1955] 28 ITR 732     had rightly held that income from agricultural lands situated in Pakistan was not agricultural income within the meaning of the Indian I.T. Act. Income-tax was, therefore, chargeable on the said income. This view of the law is beyond any dispute or pale of attack.