PETITIONER:
COMMISSIONER OF INCOME-TAX, DELHI AND RAJASTHAN
Vs.
RESPONDENT:
M/S. BHARAT CARBON AND RIBBON MANUFACTURING CO.
DATE OF JUDGMENT:
17/12/1965
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION:
1966 AIR 1561 1966 SCR (3) 170
ACT:
Indian Independence Act (10 & 11 Geo Vic. 30), 18(3) and
Income Tax Act (11 of 1922), s. 18A(1)-Advance tax-Adjusted
by Pakistan Government-If could also be adjusted by Indian
Government.
HEADNOTE:
Between June 1946 and March 1947 the assessee-company, which
then had its head office at Lahore, paid advance tax to the
Income-tax Officer, Lahore, under s. 18-A of the Indian
Income-tax Act, 1922. For the assessment year 1947-48, the
assessment was completed by the Pakistan Income-tax Officer
on 28th January 1948 after adjusting the advance income-tax
paid. The Income-tax Officer, New Delhi, assessed the tax
for the same year 1947-48 in 1952. The assessee contended
that credit should be given to him of the advance tax paid
by him in Lahore under s. 18-A(11). The claim was
disallowed by the Appellate Assistant Commissioner but the
Appellate Tribunal and the High Court on a reference,held in
favour of the assessee.
In appeal to this Court,
HELD : The effect of s. 18(3) of the Indian Independence Act
was to change the incidents of the advance tax paid.
Previously it was to be adjusted towards a single regular
assessment to be made by British India. After the
Independence Act, the advance tax was liable to be adjusted
against two regular assessments, one by India and one by
Pakistan. In Pakistan, under s. 18A(11), the Pakistan
Government was entitled to adjust the advance tax paid by
the assessee against its demand. Similary, the Government
of India was entitled to adjust the amount against its
demand. It,follows that if the assessee had been given
credit for’ the advance tax, by the Pakistan Government, he
cannot claim that credit should be given to him by the
Indian income-tax authorities. [174 B-D] Dwarka Das v.
Income-tax Officer, Kanpur, 29 I.T.R. 60 referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 106 of 1965.
Appeal by special leave from the judgment and order, dated
November 13, 1962 of the Punjab High Court (Circuit Bench)
at Delhi in Income-tax Reference Case No. 3 of 1959.
A. V. Viswanatha Sastri, Gopal Singh and R. N. Sachthey,
for the appellant.
B. L. Khanna and K. K. fain, for the respondent.
The Judgment of the Court was delivered by
Sikri, J. This appeal by special leave is directed against
the judgment of the High Court of Punjab at Chandigarh in a
reference made to it under s. 66(1) of the Income Tax Act,
1922,
171
hereinafter referred to as the Act. The questions which
were referred were :
(1) Whether the assesses was entitled to
have an adjustment of the advance tax paid by
it under Section 18-A of the Indian Income-tax
Act in Lahore for the assessment year 1947-48
against the demand of tax raised by the
Income-tax Officer 3rd Additional Business
Circle, New Delhi for the assessment year
1947-48 ?
(2) Whether the order of the Tribunal
directing a refund to the assessee out of the
advance tax paid by him in Lahore is legal and
valid ?
As the High Court rightly observed, the answer
to the second question depends on the answer
to the first question, and it is the first
question alone which requires consideration.
The relevant facts are stated in paras 2 and 3
of the Statement of the Case, as follows :
“2. The statement of case relates to the
assessment year 1947-48, the accounting period
being the calendar year ending 31st December,
1946.
3. The assessee is a public limited company
dealing in the manufacture and sale of
stationery goods. Before the partition of the
Country the company’s registered office as
well as the head office was at Lahore. The
assessment for the year 1947-48 was completed
by the Pakistan Income-tax Officer on the 28th
January, 1948 completely ignoring the
agreement of the Avoidance of Double Taxation
of Income between the Pakistan and the Indian
Governments. The assessment for the year
1947-48 was also made by the Income-tax
Officer 3rd Additional Business Circle, New
Delhi on a figure of Rs. 38,916. It is common
ground that the assessee had paid advance tax
under Section 18-A of the Indian Income Tax
Act to the tune of Rs. 36,783/6/- between
June. 1946 and March, 1947. This tax was paid
under the Indian Income-tax Act to the Income-
tax Officer, Lahore.”
The Income-tax Officer 111, Additional Business Circle, New
Delhi, by his order, dated March. 1952, determined the total
income of the respondent, M/s. Bharat Carbon & Ribon
Manufac-
172
turing Co., hereinafter to as the assessee at Rs. 38,916
and directed that demand notice and chalan be issued.
Before the Appellate Assistant Commissioner one of the
points taken up by the assessee was that credit should be
given to him of the-advance tax paid by him in Lahore, under
s. 18A(11) which reads as follows
“Any sum other than a penalty or interest paid
by or recovered from an assessee in pursuance
of the provisions of this section shall be
treated as a payment of tax in respect of the
income of the period which would be the
previous year for an assessment for the
financial year next following the year in
which it was payable, and credit therefore
shall be given to the assessee in the regular
assessment.”
The Appellate Assistant Commissioner
disallowed the claim. He observed :
“I, however, find that the amount under
Section 18-A was paid by the assessee to
Income-tax Officer, Lahore. The same Income-
tax Officer made an assessment for this very
year on 28th January, 1948 on a total income
of Rs. 1,22,014 for Income tax and Rs. 52,780
for capital gains. He worked out the total
tax payable by the assessee at Rs. 76,472/6.
As a result of this assessment, even after
setting off the tax paid under Section 18-A of
Rs. 47,513 an amount of Rs. 20,000 was still
due from this assessee. The amount under
Section 18-A, has, therefore, been adjusted by
the Pakistan authorities towards the. payment
of tax and the assessee cannot take credit for
this amount again. Under these circumstances,
it must be held that there was no balance of
tax paid under Section 18-A left to be
adjusted by the Income-tax Officer for the
Indian assessment.”
The assessee filed an appeal before the
Appellate Tribunal. The Tribunal allowed the
claim on the ground that the language of s.
18A (11) was mandatory, and it was the duty of
the Income. tax authorities to give credit for
the amount paid by the assesses as advance tax
in the regular assessment made under the
Indian Income Tax Act. It observed :
“What the Income tax authorities would do or
may have done to the advance tax paid to the
Income-tax Officer, Lahore, is entirely
immaterial.”
173
At the instance of the Commissioner of Income Tax a refer-
ence was made to the High Court. The High Court held that
if the direction contained in s. 18A(11) had to be obeyed,
credit had necessarily to be given to the assessee at the
time of regular assessment. In reply to the argument of the
learned counsel for the Commissioner of Income Tax that no
adjustment was possible because the Pakistan authorities had
already raised a demand against the assessee on January 28,
1948, and in part satisfaction of that demand wiped out the
amount standing to the credit of the assessee, the High
Court observed
“It is, however, obvious that what may have
been done by the Pakistan authorities in
January, 1948, cannot be called a proceeding
under the Indian Income Tax Act and the fact
that the money paid by the assessee under the
Indian Income Tax Act may have been seized by
the Pakistan authorities or disposed of in
some other manner, can in no way affect the
right of the assessee under the Indian Income-
tax Act.”
In the result, the High Court answered both the questions in
the affirmative.
Mr. A. V. Viswanatha Sastri, the learned counsel for the
appellant, contends before us that by virtue of s. 18(3) of
the Indian Independence Act, the Income Tax Act as it
existed before the coming into force of the Indian
Independence Act, applied both to the Dominion of Pakistan
and the Dominion of India, and the result of this
simultaneous application to both the Dominions was that the
advance tax paid by the assessee was liable to be adjusted
against the assessments made both in Pakistan and in India,
and Pakistan having made the adjustment, there was no money
left to be adjusted against the assessment in India.
The learned counsel for the respondent relies on the
reasoning of the High Court and on Dwarka Dass v. Income-tax
Officer, Kanpur(1) and says that it was the obligation of
the Government of India under s. 9 of the Indian
Independence (Rights, Property and Liabilities) Order, 1947,
either to refund the money paid as advance tax or to give
credit in the assessment in India.
Section 18(3) of the Indian Independence Act reads as
follows :
“Save as otherwise expressly provided in this
Act, the law of British India and of the
several parts thereof
(1) 29 I.T.R. 60.
174
existing immediately before the appointed day
shall, so far as applicable and with the
necessary adaptations, continue as the law of
each of the new Dominions and the several
parts thereof until other provision is made by
laws of the Legislature of the Dominion in
question or by any other Legislature or other
authority having power in that behalf.”
in our opinion the effect of s. 18 (3) of the Indian
Independence Act was to change the incidents of the advance
tax paid. Previously the advance tax was to be adjusted
towards a single regular assessment to be made by British
India. After the Indian Independence Act the advance tax
was liable to be adjusted against two regular assessments,
one by India and one by Pakistan. In Pakistan, under s.
18A(11), the Pakistan Government was entitled to adjust the
advance tax paid by the assessee against its demand.
Similarly, the Government of India was entitled to adjust
the amount against its demand. It follows that if the
assessee has been given credit for the advance tax by the
Pakistan Government, he cannot claim that credit should be
given to him by the Indian Income Tax authorities. The
effect of the Indian Independence Act was not to double the
advance money the assessee had paid. The amount of money he
paid as advance tax remained the same. Having been given
credit by the Pakistan Government he could not claim that
there was any amount left on which s. 18 (A)11 could
operate. Dwarka Dass’s case(1) relied on by the learned
counsel for the assessee is distinguishable because that
case proceeded on the assumption that no regular assessments
had been made in Pakistan for the relevant years and only
some assessment proceedings were pending. It was also
common ground that excess payments had been made by the
petitioner in that case under s. 18A of the Indian Income
Tax Act in Lahore in respect of the years 1946-47 and 1947-
48, and it was only these excess payments that the Allahabad
High Court had directed should be set off against the
assessments of the subsequent years. But the facts in the
present case are different. Here the Pakistan authorities
had made a regular assessment and had adjusted the advance
tax paid by the assessee.
In this view it is not necessary to consider the
interpretation of s. 9 of the Indian Independence (Rights,
Property and Liabilities) Order, 1947. By virtue of the
simultaneous application of the Indian Income Tax Act in
both the Dominions, there was
(1) 29 I.T.R. 60.
175
a statutory modification of the incidents of the advance tax
paid by the assessee.
In the result we hold that the answer to the questions
should be in the negative and against the assessee. The
judgment of the High Court is accordingly set aside and the
appeal accepted with costs here and in the High Court.
Appeal allowed.
176