Deductibility of non-resident interest requires assessment of the same interest item by an agent or person assessed on the principal; refund remedy available.

Proviso to the deduction rule permits allowance only where the principal or a person assessed on his behalf in British India is assessed in respect of the identical interest item; mere existence of an agent or assessability of the principal alone does not satisfy the proviso. The tribunal rightly awaited completion of the creditor's assessment on the identical item before allowing deduction; if the creditor is assessed for the same interest the assessee's remedy is to claim refund from the department. The writ seeking mandamus to compel the Tribunal to state a case was refused on these grounds.

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Issues: Whether a writ of mandamus should be issued directing the Income-tax Tribunal to state a case on the question whether interest paid to a non-resident creditor is deductible under the proviso to Section 10(2)(iii) when the creditor himself has been assessed in British India.

Analysis: The proviso to the deduction provision permits allowance where there is an agent in British India who may be assessed; the statutory text distinguishes the mere existence of an agent from the principal's assessability under Section 42. The proper statutory trigger for allowing the deduction is assessment of the principal or of a person on his behalf in respect of the identical item of interest; assessability of the principal alone, without assessment in respect of the specific item by an agent or by a person assessed on his behalf, does not satisfy the proviso. The tribunal's observation that the creditor had submitted returns and that the department should await completion of the creditor's assessment is appropriate; if the creditor is assessed for the identical item, the assessee may seek refund from the department rather than obtain mandamus against the Tribunal.

Conclusion: The petition for a writ of mandamus to direct the Tribunal to state a case is refused; the assessee's remedy is to seek refund from the Income-tax department if the creditor is assessed for the same item.

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