1960 PLP 765 (PTD)

AMIN AHMED, C. J.‑This is a reference under subsection (1) of section 66 of the Income‑tax Act (which we shall hereinafter call the Act only) stating a case upon the following point: "Whether a portion of the income of Rs. 2,28,311 could be subjected to income‑tax in Pakistan in the circumstances of the case having regard to item 5 (g) of the Schedule to the Inter-- Dominion Agreement for Avoidance of Double Taxation." The assessment year is the year 1948‑49, the accounting year being the year ending on the 30th of June, 1947.

2. The facts may be briefly stated as follows : The Bengal Burma Steam Navigation Company Limited which had gone into liquidation used to ply its vessels between Chittagong, Cox's Bazar and Rangoon competing with the B. I. S. N. Co., Ltd. Its original registered office was in Rangoon. In 1943 it shifted its office to Bombay. In 1942‑43, the Company entered into an agreement with the B. I. S. N. Co. to pay them Rs. 2,28,311 spread over six years. For the earning year 1947‑48, the B. I. S. N. Co. did not claim any amount in respect of the above sum and it was credited to the Company. Therefore, no amount was paid to the B. I. S. N. Co. The Income‑tax Department assessed the profits of Rs. 2,28,311 on the ground that this part of the profits accrued in Pakistan, as most of the earning originated from Chittagong, and assessed the Company as follows : They were assessed for half the profits arising in Pakistan waters and the other half arising in Burma waters and in terms of the Indo- Pakistan agreement profits arising in Pakistan waters were taxed 100 percent. in Pakistan and profits arising in Burma waters were taxed in the proportion of 50 : 50 in India and Pakistan, and therefore, out of this figure of Rs. 2,28,311, the income that was assessed was taken to be Rs. 1,71,233.

3. Mr. Hussain, the learned counsel for the assessee Com pany, has strenuously argued, as it was also argued before the Tribunal, that this sum of Rs. 2,28,311 neither accrued nor arose in Pakistan during the relevant year, and, therefore, no portion of it can be assessed in Pakistan. It is also argued that the place of origin was in Burma. In support of his contention, the learned counsel has referred to the same cases as he referred to in Income‑tax Reference Cases Nos. 13 and 14 of 1958, i.e., the two cases of Messrs Octavious Steel Co., Ltd., Calcutta v. The Commissioner of Income‑tax, Dacca (P L D 1959 Dacca 907 =1960 P T D 1), which we have just disposed of to‑day, i.e., 3rd March, 1959.

4. Mr. Mesbahuddin for the respondent has also relied on the same cases as he referred to in the above two cases and main tains that the Department has come to a finding of fact that the earnings of the Company with minor exceptions originated mainly from the ports of Chittagong and Cox's Bazar and only partly from Burma ports and the income and profits relating to these earnings arose and accrued in the territories where the ports are situated and, therefore, under section 4 (1) (c) read with section 42 (1) of the Act and the Indo‑Pak Agreement, the Company is liable to pay the tax assessed and there is no question of double taxation.

5. Mr. Hussain tried to raise also a point that even if half the profits arising in Pakistan and Burma were to be taxed, the calculation is wrong inasmuch as the total income is Rs. 2,28,311 and the income which has been assessed is Rs. 1,71,233.

6. Mr. Mesbahuddin points out that this argument is based on a misapprehension on the part of the learned counsel, for, the assessment is based on the Indo‑Pak Agreement i.e., profits arising in Pakistan are taxable 100% and also in respect of profits that accrued outside Pakistan (in Burma) the Income‑tax Depart ment is entitled to tax 50% and we find that the learned Advocate is correct and there is no mistake in the calculation.

7. We do not want to discuss at length the point as to whether the income that has accrued in Pakistan, even if receivable outside Pakistan, is assessable in Pakistan or not under section 4 (1) (a) and section 42 (1) of the Act, for, we have dealt with the same in extenso in Reference Cases Nos. 13 and 14 of 1956 of Messrs Octavious Steel Co., Ltd., and, if necessary, reference may be made to our decision in those two cases. We have no doubt that the first part of subsection (1) of section 42 makes no distinction between a resident and a non‑resident and even indirect accrual of income from sources in taxable territories, that is, income which accrues in Pakistan but is receivable outside the taxable territories for the purpose of taxation is just the same as that which accrues and is receivable in Pakistan and the aid of section 42 of the Act has to be invoked only in the case of income which actually accrues in Pakistan but is receivable outside Pakistan for, otherwise, section 4 will be sufficient to catch such an income. If there is an actual receipt of profits in Pakistan by or on behalf of a non‑resident, section 4 (1) (a) would apply and there is no necessity of invoking the aid of section 42 of the Act.

8. So, for the reasons stated above, we answer the Reference in the affirmative and hold that a portion of the income of Rs. 2,28,311 could be subjected to income‑tax in Pakistan in the circumstances of the case, having regard to item (5) (g) of the Schedule to the Inter‑Dominion agreement for avoidance of double taxation.

9. The Reference is disposed of in the above manner. The applicant will pay as hearing fee of this Reference three gold mohurs to the respondent. CHAKRABORTI, J.‑I agree with my lord the Chief Justice. Reference answered in affirmative.