Double taxation relief under the India-Pakistan agreement governs rebate computation, refund of excess tax, and interest on delayed refund.

Indian assessment could include computation of income attributable to Pakistan for rebate purposes, with the Income-tax Officer treated as competent to make that calculation for restricting relief on doubly taxed income. Article VI(b) of the India-Pakistan double taxation agreement was construed as a machinery provision: the demand to be kept in abeyance was the portion equal to the estimated foreign-tax abatement, and any excess collected after giving effect to advance tax payment was refundable. Interest was stated to run on the refundable amount under section 214 until actual refund where the refund was delayed.

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Issues: (i) Whether the Income-tax Officer in India was competent to compute the assessee's income attributable to Pakistan for the purpose of Indian assessment and restrict rebate in respect of such income; (ii) Whether, on the proper construction of Article VI(b) of the Agreement for Avoidance of Double Taxation between India and Pakistan, the assessee was entitled to refund and interest under section 214 of the Income-tax Act, 1961.

Issue (i): Whether the Income-tax Officer in India was competent to compute the assessee's income attributable to Pakistan for the purpose of Indian assessment and restrict rebate in respect of such income.

Analysis: The issue was treated as covered by the earlier binding decision of the same court, which had held that the Income-tax Officer in India could determine income from sources in Pakistan for Indian assessment purposes. The court therefore did not reconsider the point on merits and accepted that the officer had jurisdiction to make such computation.

Conclusion: The answer was in the affirmative and against the assessee.

Issue (ii): Whether, on the proper construction of Article VI(b) of the Agreement for Avoidance of Double Taxation between India and Pakistan, the assessee was entitled to refund and interest under section 214 of the Income-tax Act, 1961.

Analysis: Articles IV and V grant abatement against tax on doubly taxed income, and Article VI(b) was construed as a machinery provision for cases where the foreign tax was not yet known at the time of Indian assessment. The portion to be kept in abeyance was the part of the demand equal to the estimated abatement, not the residual amount after first adjusting advance tax. On that reading, the assessee was entitled to refund of the excess collected. As to interest, the court followed the view that section 214(2) allows interest on the refundable amount up to the date of actual refund where refund is delayed after assessment.

Conclusion: The answer was in the affirmative and in favour of the assessee.

Final Conclusion: The reference was answered by upholding the revenue's position on jurisdiction but granting the assessee relief on the computation method, refund entitlement, and interest on the refunded amount.

Ratio Decidendi: Under the double taxation agreement, the demand to be held in abeyance is the portion equal to the estimated foreign-tax abatement, and where advance tax has been paid in excess of the tax ultimately payable after giving effect to that abatement, the assessee is entitled to refund with interest till the date of actual refund under section 214.

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