PURSHOTAMDAS THAKURDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two references raise identical questions and we have directed that they should be consolidated. When the references last came up for hearing on March 17, 1958, the parties agreed that there should be a supplemental statement of the case and that statement of the case is now before us. The question is as under : 'Whether, on the facts and circumstances of the case, the relief allowed in the assessment under section 23(3) on that portion of dividend income from Narandas Rajaram & Co. Pirvate Ltd., which is attributable to the income of the company arising in Pakistan, can be withdrawn while making reassessment under section 34(1)(b) ?'

(2.) IT will suffice to state the facts in the first reference, which arises out of the reassessment made upon the assessee for the assessment year 1949 -50 by having recourse to the provisions of section 34, may be briefly stated. The assessee is a shareholder of M/s. Narandas Rajaram and Co. Ltd., which carried on business in the taxable territories and in Pakistan and profits accrued to that company in both the Dominions. The devidend portion attributable to the profits that accrued to the company in Pakistan amounted to Rs. 2,722. The original assessment was completed by the Income -tax Officer on May 20, 1952, and in completing that assessment the included 'the Pakistan portion of the dividend income' of the assessee in his total income. In determining the amount of income -tax and super -tax, he, however, deducted from the gross tax demand income -tax and super -tax on Rs. 2,722 at the rate applicable to the assessee's total income. The proceedings under section 34 arose because action under section 23A was taken in respect of the profits of the Industrial Corporation Ltd., a company of which the assessee is a shareholder, and the undistributed portion of the assessable income of that Corporation was deemed to have been distributed as dividend among the shareholders and the proportionate share thereof falling to the lost of the present assessee was treated as his deemed income. Before completing the assessment under section 34, the Income -tax Officer satisfied himself that the assessee had not been assessed by the Pakistan authorities in respect of Rs. 2,722, and as the assessee also had not produced any certificate of assessment made in Pakistan, the Income -tax Officer passed anorder as under : 'Tax as per I.T.30. Give credit for tax already paid against the original assessment. In the original assessment the demand was restricted to income excluding the income in Pakistan. Under article VI(b) of the Double Income -tax Avoidance Agreement the assessee has to produce a certificate of assessment from the Pakistan Authorities within one year. Though more than one year has elapsed this certificate has not been produced, and as such the abatement on Pakistan income is no longer available to the assessee.'

(3.) THE very short point urged before us by Mr. Palkhivala, learned counsel for the assessee, is that the Income -tax officer did not keep this amount of tax in abeyance, which could have been done only after taxing the amount, but what he did was that he did not assess the tax at all. The distinction sought to be drawn is that in one case the amount of income -tax is ascertained and tax is levied but it is only the recovery of the amount of the tax that is kept in abeyance or deffered and in other case there is no asssessment at all. The position is that if no certificate is produced before the Income -tax Officer as required by the relevant provisions of the Agreement for Avoidance of Double Taxation in India and Pakistan, the abatement would in the first case cease to be operative and the outstanding demand would become effective forthwith. Article VI(b) of the Agreements is as under : 'Where at the time of assessment in one Dominion, the tax payable on the total income in the other Dominion is not known, the first Dominion shall make a demand without allowing the abatement, but shall hold in abeyance for a period of one year (or such longer period as may be allowed by the Income -tax Officer in his discretion) the collection of a portion of the demand equal to the estimated abatement. If the assessee produces a certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income -tax Officer, the uncollected portion of the demand will be adjusted against the abatement allowable under this Agreement; if no such certicifate is produced, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith.'