S.T. Desai, J.
1. These two references raise identical questions and we have directed that they should be consolidated. When the references last came up for hearing on March 17, 1958, the parties agreed that there should be a supplemental statement of the case and that statement of the case is now before us. The question is as under :
'Whether, on the facts and circumstances of the case, the relief allowed in the assessment under section 23(3) on that portion of dividend income from Narandas Rajaram & Co. Pirvate Ltd., which is attributable to the income of the company arising in Pakistan, can be withdrawn while making reassessment under section 34(1)(b) ?'
2. It will suffice to state the facts in the first reference, which arises out of the reassessment made upon the assessee for the assessment year 1949-50 by having recourse to the provisions of section 34, may be briefly stated. The assessee is a shareholder of M/s. Narandas Rajaram & Co. Ltd., which carried on business in the taxable territories and in Pakistan and profits accrued to that company in both the Dominions. The devidend portion attributable to the profits that accrued to the company in Pakistan amounted to Rs. 2,722. The original assessment was completed by the Income-tax Officer on May 20, 1952, and in completing that assessment the included 'the Pakistan portion of the dividend income' of the assessee in his total income. In determining the amount of income-tax and super-tax, he, however, deducted from the gross tax demand income-tax and super-tax on Rs. 2,722 at the rate applicable to the assessee's total income. The proceedings under section 34 arose because action under section 23A was taken in respect of the profits of the Industrial Corporation Ltd., a company of which the assessee is a shareholder, and the undistributed portion of the assessable income of that Corporation was deemed to have been distributed as dividend among the shareholders and the proportionate share thereof falling to the lost of the present assessee was treated as his deemed income. Before completing the assessment under section 34, the Income-tax Officer satisfied himself that the assessee had not been assessed by the Pakistan authorities in respect of Rs. 2,722, and as the assessee also had not produced any certificate of assessment made in Pakistan, the Income-tax Officer passed anorder as under :
'Tax as per I.T.30. Give credit for tax already paid against the original assessment. In the original assessment the demand was restricted to income excluding the income in Pakistan. Under article VI(b) of the Double Income-tax Avoidance Agreement the assessee has to produce a certificate of assessment from the Pakistan Authorities within one year. Though more than one year has elapsed this certificate has not been produced, and as such the abatement on Pakistan income is no longer available to the assessee.'
3. The result was that the assessee was asked to pay the amount of Rs. 836 as income-tax and the amount of Rs. 1,478-7-0 as super-tax on that dividend income of Rs. 2,722. The Appellate Assistant Commissioner upheld the decision of the Income-tax Officer and the appeal to the Tribunal was dismissed.
4. The very short point urged before us by Mr. Palkhivala, learned counsel for the assessee, is that the Income-tax officer did not keep this amount of tax in abeyance, which could have been done only after taxing the amount, but what he did was that he did not assess the tax at all. The distinction sought to be drawn is that in one case the amount of income-tax is ascertained and tax is levied but it is only the recovery of the amount of the tax that is kept in abeyance or deffered and in other case there is no asssessment at all. The position is that if no certificate is produced before the Income-tax Officer as required by the relevant provisions of the Agreement for Avoidance of Double Taxation in India and Pakistan, the abatement would in the first case cease to be operative and the outstanding demand would become effective forthwith. Article VI(b) of the Agreements is as under :
'Where at the time of assessment in one Dominion, the tax payable on the total income in the other Dominion is not known, the first Dominion shall make a demand without allowing the abatement, but shall hold in abeyance for a period of one year (or such longer period as may be allowed by the Income-tax Officer in his discretion) the collection of a portion of the demand equal to the estimated abatement. If the assessee produces a certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income-tax Officer, the uncollected portion of the demand will be adjusted against the abatement allowable under this Agreement; if no such certicifate is produced, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith.'
5. It is argued that in any such case the Pakistan portion of the income must be taxed but there would bean abatement and that abatement would cease to be operative if no requisite certificate is obtained within the specified period. It is also argued that there must be a demand for the amount of the tax including the amount of the Pakistan portion of the income and the demand must be without allowing the abatement. In such a case what should be done is, so the argument has proceeded, that the amount of tax will be held in abeyance for a period of one year. It is only the collection of a portion of the demand, which is deferred. Mr. Palkhivala has drawn our attention to the Assessment Form and Part II of the same, which is headed 'Sums included in total income in respect of which income-tax and/or super-tax is not payable'. The amount of Rs. 2,722 is mentioned as 'income accruing or arising in Pakistan' and the amount of Rs. 836 is mentioned as income-tax and Rs. 1,478-7-0 is mentioned as super-tax. The argument is that if one turns to the other items in Part II, they are all items in respect of which no tax was payable at all and, theref ore, the item of Rs. 2,722 mentioned there must also be read asan item in respect of which no tax whatever was due. We do not think we would be justified in attaching too much value to this fact, though of course, it is a circumstance to be taken into consideration in ascertaining the overall position. Then it is said that the position becomes clearer still when we turn to the notice of demand under section 20 and that demand is only for Rs. 2,722 and does not include any tax on the Pakistan portion of the dividend income. In our opinion, there is considerable force in this aspect of the matter stressed on behalf of the assessee.
6. It has been argued on the other hand by Mr. G. N. Joshi that the amount of Rs. 2,722 has been taken into computation for the purpose of taxation since it has been taken as part of the total income of the assessee. That answer, in our opinion, does not meet the situation. Then it is said that there is the necessary implication that the amount of Rs. 2,722 was brought to tax for the purpose not merely of ascertaining the total income but for the purpose of ascertaining income-tax and super-tax. We do not think we would be justified in drawing any such implication from what is stated in Part II of that Form. Then it is said that in effect the result is the same and what happened was tht for the time being the assessee was not to pay any tax on the amount of Rs. 2,722.
7. Now this argument of necessary implication may avail in certain cases, but we fail to see how it can be availed of by the Department in the present case. Assuming that there is scope for some implication, how far is the implication to go Is the implication to be read as underlying also the notice of demand The answer to that must be that there is here little scope for such implication and none whatever in case of the notice of demand.
8. For all these reasons our answer to the question will be in the negative. We may mention that there were three other questions in the reference, but those questions were already answered onan earlier occasion. The order will also be in accordance with the answers to those questions.
9. We have heard counsel on the question of costs. There will be no order for costs.
10. Question answered in the negative.