COMMISSIONER OF INCOME-TAX, DELHI AND RAJASTHAN versus M/S. BHARAT CARBON AND RIBBON MANUFACTURING CO. on 17 December 1965

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COMMISSIONER .OF INCOME-TAX; DELHI Ac"ID RAJASTHAN

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M/S. BHARAT CARBON AND RIBBON MANUFACTURING CO. December 17, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.J

Indian Independence Act (10 & 11 Geo Vic. 30), 18(3) and Income Tax Act ( l l of 1922), s. I 8A ( l l )-Advance tax-Adjusted by Pakistan Oovenunent~lf could also be adiust.ed by Indian Govf!rnment.

Between June 1946 and March 1947 the assessee,.company1 which then l1ad its head office at Lahore, paid advance tax to the Income.tax Officer, Lahor.e,, under s. ,l 8-A of the Indian Income-tax Act, 1922. For the :assessn1ent year J 947-48, the assessment was completed by 'the Pa)cistan Jncome4ax Officer on 28th January 1948 after adjus!ing the advance in-come-tax paid. The Income-tax Officer, New Delhi, assessed the tax for the same year 1947-48 in 1952. The assessee contended that credit '.3hOuld be given to him .. of the'""a~ance tax paid by him in Lahore under s. 18-A(ll). The. claim was disaflmved_by the Appellate Assistant Com-missioner but the Appellate Tribunal, <1nd-the High Court on a reference, held in favour of the p.ssessee.

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In app_eal to this Court,

'HELD: The effect of s. 18(3) of the Indian In"dependence Act was to change the incidents of the advance tax paid. Previously it was to be adjusted to\vards a single regular assessment to be made. by British India ..... ~ After the Independence Act, the advance tax was ,liable to be adjusted E .against t\vo regular aS<Se6sments, one by India and one by Pakistan. Jn Pakistan, under s. 1SA(11). the Pakistan Government was enti11ed 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 cred:t for the advance tax, by the Pakistan Government, he cannot claim that credit '8hould be given to him by the Indian income-tax authorities. [174 B-D] D•varka Das v. Income-t~x Officer, 'Kanpur, 29 I.T.R. 60 refCrred to. F CIVIL APPELLATE JURISDICTION : Cjvi! Appeal No. 106 of 1965.

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Appeal by special leave frollf 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.

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for the appellant.

B. L. Khanna and K. K.- Jain, for the respondent.

The. Judgment of the Court was de~ivered by Sikri, .T. This appeal by special leave is directed against the judgment of the High Court of Punjab, at Chancligarh in· a reference made to it under s. 66 ( 1) of the-Income Tax Act, 1922, )

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=_C. 1.T. v. BHARAT CARBON ©0. (Sikri, J.)171Ahereinafterreferred referredto as the Act. The questions which were were:we-||(1) Whether the assessee 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 theassessment year 1947-48 against the demand of tax___ Yaised by the Income-tax Officer 3rd Additional Busi-|nessCircle,’ NewDelhi for theassessméntyear|1947-482?0|.ceeo(2) Whether the order of the Tribunal directing a =Ccrefund to the assessee out of the advance tax paid byhim-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 itis the_first question alone which requires consideration. --.|

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The relevant facts are stated in paras 2 and 3 of the State-mentof the Case, as follows:—a

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:“2. The statement of case relates to the assessmentyear 1947-48, the accounting period being the calendaryear ending 31st December, 1946...|

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—__,3. The assessee is a public limited company dealing|in the manufacture and sale of stationery goods. . Beforethe partition of the Countrythe company’s registered“office as well as the head office was at Lahore. Theassessment 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 betweenthe Pakistan and =s=~-- “ the Indian Governments.The assessment for the year1947-48 was also made by the Income-tax Officer 3rd_Additional Business Cirele, New Delhi on a figure of=Rs. 38,916. It is common ground that the assessee had|.. paid advance tax under Section 18-AoftheIndian ~~Income Tax Act to the tune of Rs. 36,783/6/- between-June, 1946 and March, 1947. .Thistax was paidunder-the Indian Income-tax Act to the Income-tax Officer,Lahore.”»|OoooSo |

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The Income-tax Officer III, Additional Business Circle, NewDelhi, by his order, dated March, 1952, determinedthefotal™income of the respondent, M/s..Bharat Carbon & Ribon Manufac- .

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turing Co., hereinafter referred 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 as!CSsee 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 provi-sions 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 therefor 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 Ollicer 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. 4 7,513 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 bo 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 '· I RA (I I ) was mandatory, and it was the duty of the Income. tax authorities to give credit for the amount paid by the asscssec 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 Olficer, Lahore, is entirely immaterial."

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A 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 B 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 C 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 sei;red by the Pakistan authorities or disposed of in some other manner, can in no way affect the right of the assessee D 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 E 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 ~gainst the assessments made both in Pakistan and in F 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(') and says that it was the obligation of the Government G of India under s. 9 of the Indian Independence (Rights, Property and Liabilities) Order, 1947, either to refund th.e 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:

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"Save as otherwise expressly provided in this Act, the law of British India and of the several parts thereof (I} 29 I. T.R. 60.

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existing immediately before the appointed day shall, so.far as applicable and with the necessary adaptations,.¢Ontinue as the law of each of the new Dominions andthe several parts thereof until other provisionis made-by laws of the Legislature. of the Dominion in question|or by any other Legislature or other authority having~-* power in that behalf.”||

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|- Tnour opinion the effect of s. 18(3) of the Indian IndependenceAct. was to change the incidents of the advance tax paid.Pre-.viously the advance tax was to be adjustedtowardsasingleregular 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.InPakistan, 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 the9amount against its demand. - It follows that if the assessee hasbeen given credit for the advance tax by the Pakistan Govern-. ? ? a+.° ment, he cannot claim that credit should be given to him by the‘Indian Income Tax authorities. The effect of the Indian Indepen-|dence Act was not to double the advance money the assessee had_ paid.The amount of money he paid as advance tax remainedthe same.Having been given credit by the Pakistan Government: Ehe could not claim that there was any amount Jeft on which—_.§- 48€A)11 could operate.” Dwarka Dass’s case(*) relied on bythe Iearned counsel for the assessee is distinguishable because that-case proceeded on the assumption that no regular assessments hadbeen made in Pakistan for the relevant yearsandonly some-assessment proceedings were pending. It was also common ground_that excess payments had been made by the’ petitioner in thatcase under s. 18A of the Indian Income Tax Act in Lahore inrespect of the years 1946-47 and 1947-48, and it was only these~ _excess payments that the Allahabad High Court haddirectedshould be set off against the assessments of the subsequent years._But the facts in the present case are different..Here the PakistanGauthorities had made a regular assessment and had adjusted theadvance tax paid by the assessee..|.a X‘

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Jn this view it is not necessary to consider the interpretationoflities) s. 9 Order, of the 1947. Indian IndependenceBy virtue of the (Rights, simultaneous Property application and Liabi-.Of the Indian Income Tax Act in both the Dominions, there was |

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(1) 29 LT.R, 60.

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*. Cv. T. ¥. BHARAT CARBON CO. (Sikri, J.)

Aa statutory modification of the incidents of the advance tax paidby the assessee,:

In the result we hold that theanswertothequestionsshould be in the negative and against the assessee.The judgmentof the High Court is accordingly set aside and the appeal accepted_- g_ with costs here and in the High Court.|

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oo,Appeal allowed.

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