1968 PLP 418 (PTD)

HASAN, J.‑The registered office of the applicant is situated it 22, Canning Street, Calcutta. The applicant has two mills owned by it, one of which is situated at Kushtia in Pakistan known as Mill No. 1, the other is in India known as Mill No.

2. In the 7 assessment years commencing from 1950‑51 to 1956‑57 the Company claimed exclusion from taxation the interest alleged to have been paid on certain sum of money alleged to have been borrowed in Calcutta before Partition and utilised in the Mills situated in Pakistan. The Income‑tax Officer directed the Company to intimate the officer to whom and when interest was paid in Calcutta. No reply was received nor any statement to that effect was filed by the Company before the Income‑tax Officer. On the facts the Income‑tax Officer concluded that there was no material before the Income‑tax Officer that any interest had ever been paid in India. He also opined that in view of the proviso (iii) to section 10(2), the Company was not entitled to the exclusion of this interest and accordingly he rejected the prayer of the Company. The order of the Income‑tax Officer was maintained on appeals before the Appellate Assistant Commissioner as well as before the Tribunal. The assessee filed 7 applications for referring the matter under section 66(1) of the Income‑tax Act to this Court and the Tribunal after consideration of the matter referred the following question, to the High Court for answer: "Whether in the facts and circumstances of the case the Income‑tax Officer was justified in not allowing the claim of proportionate interest on borrowings utilised in Pakistan though no tax was deducted under section 18(3) as required by section 10(2) (iii) proviso." The facts have not been challenged, before us by the learned Advocate for the applicant nor the provision of law as laid down in section 10 (2) (iii) and section 18 (3‑B). Section 10 (2) (iii) provides that such profits or gains shall be paid after making allowance, namely, in respect of capital borrowed for the purposes of business, profession or vocation the amount of interest paid, provided that no allowance shall be made under this clause in any case for any interest chargeable under this Act which is payable without the taxable territories, not being interest on a loan issued for public subscription before the 1st day of April 1938, except interest on which tax has been paid or from which tax has been deducted under section 18 or in respect of which there is an agent in the taxable territories who may be assessed under section 43 or, in the case of a firm, for any interest paid to a partner of the firm. Section 18 (3‑B) runs :‑ "Any person responsible for paying to a person not resident in Pakistan any sum not being `interest on Securities' chargeable under the provisions of this Act shall at the time of payment, unless he is himself liable to pay any income‑tax and super‑tax thereon as an agent, deduct (in case of a company) income‑tax at the maximum rate and the super‑tax at the rate applicable to a company (and in other cases, tax) in accordance with the provision of subsection (1) of section 17: Provided that where the person not resident is not a company, the proviso to subsection (2‑B) shall apply to the deduction of (tax) under this sub section as it applies to the deduction of (tax) under subsection (2‑B). From the aforesaid provision of law it appears that when there is an agent of a foreign company in Pakistan and the interest has been paid to that agent from whom Income‑tax authority in Pakistan can realise tax on the interest or when the assessee has paid interest to any foreign country but has deducted the tax on the interest, in that case only the assessee is entitled to A the benefit of section 10 (2) (iii). In the present case it is not the case of the assessee that the interest has been paid to any agent of the foreign Company in Pakistan nor is the case that it has deducted the tax payable on the interest and accordingly the assessee is not entitled to the deduction as claimed by it. Reference may be made to the case of The Howrah Trading Co. (Private) Ltd. v. The Commissioner . of Income‑tax, East Pakistan (P L D 1963 S C 352). Mr. Asrarul Husain, the learned Advocate for the applicant, has not challenged the aforesaid provision of law but he has contended that having regard to the facts and circumstances it is very difficult to decide whether the assessee is entitled to rebate or is liable to taxation in the absence of the report of Two‑Man Committee. He has further contended that even assuming as found by the Tribunal that the Two‑Man Committee order is nothing but an executive instruction, still it is binding on the authority and as such the applicant is entitled to deduction. We do not find any substance in this contention. Relevant portion of the minutes of the Two‑Man Committee held in New Delhi in 1951 runs: The only point in dispute appears to be regarding the allocation of over‑head expenses and interest on borrowed capital. These should be allocated according to the production of each Mill." Even assuming that there is such an understanding between the two Governments and is binding on the two Governments, that does not necessarily go to show that the minutes had overweighed the provisions of law. In our opinion that agreement was only reached in order to avoid double taxation. Here in the present case; the assessee has not claimed that the assessee was going to pay double. The only claim is that in view of this agreement, whether the same has been paid or not either to the foreign Company or to an, agent in Pakistan, or tax on the interest has been retained by the assessee or 'not, the assessee is entitled to rebate. We are unable to accept this contention. It may be further observed that before claiming the benefit arising out .of the Two‑Man Committee agreement, the assessee must satisfy that it has acted in accordance with the provision of law, that is, it has retained the tax payable on the interest or it has paid to an agent of the foreign' Company in Pakistan. It has been found both by the Income‑tax Officer as well as by the Appellate Assistant Commissioner and the Tribunal on appeals that there is nothing to show that the assessee either retained the tax payable on the interest or it paid interest to an agent of the foreign company in Pakistan or to any body else. This being the case, we answer the question in, the affirma tive. The respondent is entitled to costs assessed at ten Gold Mohurs. ABDULLA, J. ‑I agree. S. Q. Reference answered in the negative.