Double taxation relief agreement limits abatement, not assessability, so foreign dividend income remains in domestic loss computation.

A double taxation relief agreement does not, by itself, exclude Pakistan-source dividend income from assessability under the Indian Income-tax Act, 1922. The agreement operated only to grant relief by abatement after assessment, while domestic law continued to govern whether the income formed part of total income. Income chargeable under the Act and not exempt under its provisions had to be included in computing total income, and could then be considered for set-off under section 24(1). The foreign dividend was therefore brought within the Indian assessment framework for loss computation and statutory set-off.

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Issues: Whether dividend income received from a Pakistan company was deductible in computing the assessee's total world loss under section 24(1) of the Indian Income-tax Act, 1922, notwithstanding the agreement for avoidance of double taxation.

Analysis: The agreement between the two Dominions did not alter the ordinary operation of the Indian Income-tax Act for the purpose of assessment. Its function was confined to granting relief by way of abatement after assessment, and it did not exempt the Pakistan dividend from being brought into the assessable income under the Indian law. Income taxable under the Act, and not shown to be exempt under any provision of the Act, had to be included in determining total income; once so included, it could be taken into account in applying the set-off provisions of section 24(1). The view that the agreement excluded the dividend from assessment was rejected as resting on a misconception of the limited scope of the treaty.

Conclusion: The dividend income from the Pakistan company was deductible in arriving at the assessee's total world loss under section 24(1), and the High Court's contrary answer was set aside.

Final Conclusion: The appeal succeeded and the questions referred were answered against the assessee, with the dividend income brought within the Indian assessment framework for purposes of set-off and computation of loss.

Ratio Decidendi: A double taxation relief agreement that merely regulates abatement after assessment does not exclude foreign-source income from assessability under the domestic income-tax law, and such income must be included for applying statutory set-off provisions unless the Act itself grants an exemption.

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