1955 (9) TMI 56 - HC - Income Tax

High Court: Double taxation agreement inapplicable. Agricultural income from pre-partition lands not exempt from tax. Commissioner awarded costs.

KUMAR JAGADISH CHANDRA SINHA Versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

KUMAR JAGADISH CHANDRA SINHA Versus COMMISSIONER OF INCOME-TAX, WEST BENGAL - [1955] 28 ITR 732 (Cal) Issues Involved: Applicability of the double taxation avoidance agreement; Taxability of agricultural income from lands situated in Pakistan post-partition.Issue 1: Applicability of the Double Taxation Avoidance AgreementThe first issue concerns whether the agreement for the avoidance of double taxation of income between India and Pakistan, dated December 10, 1947, is applicable to income accruing to a resident in India from agricultural lands situated in Pakistan, which is exempt from tax under the Pakistan Income-tax Act from August 15, 1947. The Tribunal held that the agreement applied only to income assessed in both countries. Since the income in question was not assessed in Pakistan, the agreement had no application. The High Court noted that the agreement applies to taxes imposed by the Indian Income-tax Act as adapted in both Dominions. It required proof of the adaptations made in Pakistan and evidence that the income was taxable under the Pakistan Income-tax Act. The absence of such evidence rendered the agreement inapplicable. Dr. Pal conceded that without proof of the relevant Pakistan law, the questions based on the agreement could not be answered. The Court thus concluded that the questions related to the agreement for the avoidance of double taxation could not be answered due to the lack of evidence regarding Pakistan law.Issue 2: Taxability of Agricultural Income from Lands Situated in Pakistan Post-PartitionThe second issue is whether the portion of the assessee's income which accrued or arose on and after August 15, 1947, from agricultural lands situated in Pakistan, and which lands had been assessed to land revenue in pre-partition British India up to August 15, 1947, is exempt from Indian income-tax in the assessment year 1948-49. The Tribunal's decision was divided. The Accountant Member held that the income attributable to the period after August 14, 1947, was not agricultural income under the Indian Income-tax Act and was thus liable to tax. The Judicial Member held that if the land was assessed to land revenue in British India at any time during the accounting year, the income for the entire year was agricultural income and exempt from tax. The President of the Tribunal agreed with the Accountant Member. The High Court analyzed the definition of 'agricultural income' and the adapted definition of 'British India.' It concluded that the expression 'is assessed' refers to a present and subsisting assessment to land revenue in British India. If the land goes over to a foreign state and the original assessment is abrogated or replaced, it ceases to be land 'which is assessed to land revenue in British India.' The Court found that the income derived from land in Pakistan post-partition could not be considered agricultural income under the Indian Income-tax Act. The Court thus answered the second question in the negative, stating that the income was not exempt from Indian income-tax.Judgment Summary:The High Court ruled that the double taxation avoidance agreement could not be applied due to the absence of evidence regarding the relevant Pakistan law. Consequently, the questions based on the agreement for the avoidance of double taxation were not pressed. Regarding the taxability of agricultural income from lands situated in Pakistan post-partition, the Court concluded that such income was not exempt from Indian income-tax for the assessment year 1948-49. The Commissioner of Income-tax was awarded costs from the assessee for the assessment year 1948-49, but no order for costs was made for the assessment year 1949-50.