Tax treaty abatement conditionality prevents withdrawal of previously recorded foreign source dividend relief on reassessment.

Article VI(b) of the India Pakistan DTAA establishes a conditional abatement permitting a taxing administration to hold collection of tax on foreign sourced dividend income in abeyance pending production of a certificate of assessment from the other jurisdiction; if no certificate is produced within the prescribed period the abatement lapses and demand becomes collectible. The analysis concludes that where the original assessment and demand records reflect such a deferred/abeyance position, a later reassessment may not treat the previously allowed abatement as never having existed; consequently the earlier relief for Pakistan attributable dividend cannot be withdrawn on reassessment.

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Issues: Whether, on the facts and circumstances of the case, the relief granted in the original assessment under section 23(3) in respect of that portion of dividend income attributable to income arising in Pakistan can be withdrawn when making a reassessment under section 34(1)(b).

Analysis: The question turns on the application of Article VI(b) of the India-Pakistan Double Taxation Agreement and the effect of the original assessment entries and demand procedures. Article VI(b) permits the first Dominion to make a demand without allowing the abatement when tax payable in the other Dominion is unknown, while holding in abeyance the collection of a portion of the demand equal to the estimated abatement for a period of one year (or longer in the officer's discretion); if a certificate of assessment from the other Dominion is not produced within that period the abatement ceases and the outstanding demand becomes collectible. The assessment form entries and the notice of demand were considered: the Pakistan portion of income was recorded in Part II as income accruing in Pakistan and the demand form did not state tax on that amount. The proper construction is that Article VI(b) contemplates taxation subject to a conditional abatement whose continued operation depends on production of a certificate; it does not permit the department, upon reassessment under section 34(1)(b), to treat a previously allowed abatement as never having existed where the original assessment and demand record a deferred/abeyance position rather than an unconditional taxation. Implied taxation for purposes of ascertaining total income cannot be read so far as to negate the specific abeyance mechanism and the clear content of the notice of demand.

Conclusion: The relief allowed in the original assessment in respect of the Pakistan-attributable dividend cannot be withdrawn in the reassessment under section 34(1)(b); decision is in favour of the assessee.

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