Rectification of patent error in double taxation abatement formula upheld where total income was read in its statutory sense.

Article VI of the India-Pakistan Double Taxation Agreement was held to use "total income" in its ordinary statutory sense under the Indian Income-tax Act, and the omission to apply the prescribed abatement formula while computing corporation tax was treated as a patent mistake. Because the error was apparent from the record, rectification under section 154 of the Income-tax Act was valid. The contemporaneous administrative circular supporting that reading of "total income" was also relied on, and the issue was resolved in favour of the revenue.

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Issues: Whether the recalculation of abatement under articles IV to VI of the Agreement for Avoidance of Double Taxation between India and Pakistan involved a mistake apparent from the record so as to justify rectification under section 154 of the Income-tax Act, 1961.

Analysis: Under article IV, each Dominion is to make assessment under its own laws, and under article VI(a) the tax payable on the doubly taxed income is to be determined by applying the prescribed proportion with reference to the total income of the assessee in each Dominion. The Court held that the term "total income" in article VI(a) bears its ordinary statutory meaning under the Indian Income-tax Act and that the original assessment omitted to apply the prescribed formula while computing corporation tax. That omission was held to be patent and obvious, and therefore rectifiable under section 154. The Court also relied on the contemporaneous administrative circular stating that "total income" in article VI means total income as defined in the Indian Income-tax Act.

Conclusion: The rectification under section 154 was valid and the issue was answered in favour of the revenue.

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