Treaty classification of interest income turns on intended deployment in Pakistan, bringing the receipt within the specific agreement clause.

Interest income from money lent for deployment in Pakistan fell within item 5(f) of the Indo-Pakistan double taxation agreement because the decisive factor was the intended and actual bringing of the funds into Pakistan for that specific business purpose. Although the lending transaction occurred in Calcutta, the advances were meant for the management and development of sugar mills in East Pakistan, and the funds were in fact taken there for that purpose. Item 9, being residuary, did not apply where item 5(f) directly covered the income. The question was answered in favour of the assessee.

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Issues: Whether the sum of Rs. 1 lakh was income derived from money lent at interest and brought into Pakistan in cash or in kind within item 5(f) of the Schedule to the Agreement for Avoidance of Double Taxation between India and Pakistan.

Analysis: The transaction of lending took place at Calcutta, but the decisive consideration was the purpose for which the advances were made. The money was intended to be diverted to East Pakistan for the management and development of the sugar mills there, and the managed companies actually brought the funds into Pakistan for that business. On those facts, the income fell within item 5(f), which specifically governs income derived from money lent at interest and brought into a Dominion in cash or in kind. Item 9 was only residuary and had no application where the case was directly covered by item 5(f).

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

Ratio Decidendi: Where money is lent for a specific purpose of being deployed in Pakistan and is brought into that Dominion for that purpose, the resulting interest income is covered by item 5(f) of the Indo-Pakistan double taxation agreement and not by the residuary clause.

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