Reassessment could not withdraw treaty relief on Pakistan dividend income where the original demand showed no tax had been levied.

Reassessment under section 34(1)(b) of the Income-tax Act, 1922 could not withdraw relief earlier allowed under section 23(3) for the Pakistan portion of dividend income where no certificate of assessment from Pakistan authorities was produced within the period under Article VI(b) of the Double Income-tax Avoidance Agreement. The Court held that the assessment records and demand notice showed no tax had been levied on that Pakistan income in the first place, and the statutory machinery did not support treating the matter as an assessment with deferred collection. Accordingly, the earlier relief could not be reversed on reassessment, and the question was answered in favour of the assessee.

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Issues: Whether, on reassessment under section 34(1)(b) of the Income-tax Act, 1922, the relief earlier allowed under section 23(3) in respect of the Pakistan portion of dividend income could be withdrawn when no certificate of assessment from the Pakistan authorities had been produced within the period prescribed by Article VI(b) of the Double Income-tax Avoidance Agreement.

Analysis: The earlier assessment had not merely postponed recovery of a quantified tax demand; the original demand and the notice of demand reflected that no tax was being levied on the Pakistan portion of the dividend income. The Agreement contemplated abatement being withheld or later becoming inoperative where the tax had first been demanded and collection of the abated portion was held in abeyance. On the facts stated, the departmental action could not be treated as an assessment of tax on the Pakistan income followed by deferred collection. The form of the assessment, the demand, and the statutory machinery did not support the implication that tax had been assessed on that amount and merely kept in abeyance.

Conclusion: The relief allowed under section 23(3) could not be withdrawn in reassessment under section 34(1)(b); the question was answered in the negative, in favour of the assessee.

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