Court quashes Income-tax Officer's assessment, orders abatement recalculation. Appeal dismissed with no costs.

The court quashed the assessment by the Income-tax Officer and directed a recalculation of the abatement based on the principles outlined in the judgment. The appeal was dismissed with no order as to costs.

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Issues Involved: Interpretation of Articles IV, V, and VI of the agreement for avoidance of double taxation between India and Pakistan; Calculation of abatement for income assessed in both India and Pakistan; Discrepancy in the net Pakistan income for abatement purposes; Calculation of abatement for foreign income under Article V.

Issue-wise Detailed Analysis:

1. Interpretation of Articles IV, V, and VI of the Agreement:
The case revolves around the interpretation of Articles IV, V, and VI of the agreement for avoidance of double taxation between India and Pakistan. Article IV mandates that each Dominion shall make assessments under its own laws and allow abatement for any income charged in excess of the amount specified in the Schedule. Article V deals with income chargeable to tax in both Dominions, allowing an abatement equal to one-half of the lower amount of tax payable in either Dominion. Article VI outlines the method for calculating the tax payable for abatement purposes. The judgment emphasizes that the language of the agreement is "confused, inept, and extremely difficult to decipher," necessitating judicial interpretation.

2. Calculation of Abatement for Income Assessed in Both India and Pakistan:
The appellant, the State Bank of India (successor of the Imperial Bank of India), was assessed for the year 1947-48. The bank had income in both India and Pakistan, bringing it within the scope of the agreement. The Income-tax Officer's computation of abatement was contested by the respondent. The court highlighted that under Article IV, the whole amount of the excess income assessed in India, which should have been assessed in Pakistan, must be given credit for. The "tax payable" for abatement purposes is calculated as the proportion of the excess income to the total income in each Dominion. The actual abatement allowed is the lower of the tax payable in India and Pakistan on the excess income.

3. Discrepancy in the Net Pakistan Income for Abatement Purposes:
A significant issue was the discrepancy between the net Pakistan income assessed in India (Rs. 13,88,543) and the income assessed in Pakistan (Rs. 10,37,086). The court rejected the Income-tax Officer's argument that the lower figure should be used, stating that for abatement purposes, a single figure must be used to ensure accuracy. The court concluded that the Pakistan income as assessed in India (Rs. 13,88,543) should be used for calculating the abatement.

4. Calculation of Abatement for Foreign Income under Article V:
The assessee had foreign income assessed in both India and Pakistan. The Income-tax Officer incorrectly considered only half of the foreign income included in the Pakistan assessment for abatement purposes. The court clarified that the whole foreign income should be considered, and the abatement should be calculated as one-half of the lower amount of tax payable in either Dominion on the doubly taxed income.

Conclusion:
The court quashed the assessment made by the Income-tax Officer and directed a recalculation of the abatement based on the principles outlined in the judgment. The appeal was dismissed with no order as to costs.

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