1. These appeals relating to the assessment years 1976-77 and 1977-78 are by Petro Chemicals Ltd., Raichur, as agents of Mr. M.G.K. Blum against the orders of the Commissioner 263 of the Income-tax Act, 1961 ('the Act'). The assessee had filed a return of income for the assessment year 1976-77 declaring the previous year as the financial year and an income of Rs 2,54,995 under the head 'Salaries'. He is an employee of Lurgi Mineraloltechnik GMBH, Frankfurt, West Germany. The latter, under a contract with Mysore Petro Chemicals Ltd. (MCPL) in connection with setting up Phthalic Anhydride Plant at Raichur had lent the services of the assessee to MCPL. The assessee was in India from 27-8-1975 to 9-12-1975 and again from 7-1-1976 to 6-4-1976. Thus, in all, in the financial year 1975-76, the assessee stayed in India for 190 day On this basis, i.e., the financial year as the previous year, the assessee was taxable on an income of Rs 2,54,995 for the assessment year 1976-77. However, the assessee's agents, viz., MCPL filed two returns for the assessment years 1976-77 and 1977-78 declaring incomes of Rs 1,51,405 and Rs 1,39,342 under the head 'Income from other sources' on the basis that the previous year of the assessee was the calendar year. This meant that in each of the previous years relevant for the two assessment years, the assessee was in India for less than 180 days and his income was not taxable as non-resident. The claim of the assessee was based on the ground that the previous year for the assessee in West Germany was the calendar year and as his income was being taxed thereon that basis, the same previous year had to be followed in India also in the light of the Double Taxation Avoidance Agreement between the two countrie The ITO had accepted the assessee's contention and had declared the assessee as not taxable for the years in question.
2. The Commissioner, acting 263, held that there was an error in the orders of the ITO insofar as it was prejudicial to the revenue. MCPL had obtained exemption from the Government of India 10(6)(viia) of the Act in respect of the remuneration payable to the assessee on the basis of an application declaring the assessee as an employee of MCPL. The assessee had also declared in the original return income under the head 'Salaries'. He, therefore, rejected the contention that income should be assessed from 'other sources'. Since the assessee could have different previous years for different sources of income, remuneration from MCPL accruing from a source different from the source of income in Germany and also the assessee not having maintained accounts for this source of income, the Commissioner held that declaration of the calendar year as the previous year was an afterthought to avoid taxability. He, accordingly, set aside the orders of the ITO for the two years in question and directed him to assess the entire income of Rs 2,54,995 under the head 'Salaries' in the assessment year 1976-77 alone. The assessee is in appeal.
3(i). Shri Soli, E. Dustur, the learned counsel for the assessee, submitted that the Commissioner in his order had admitted that there was no contract of service between the assessee and MCPL. As such it followed, there was no employer-employee relation between the two. The Explanation added to Section 9 of the Act deeming that amounts of the type received by the assessee for services rendered in India was income assessable to Indian income-tax introduced by the Finance Act, 1983, was effective only from the assessment year 1979. As such the income was exempt in the light of the decision of the Gujarat High Court in CIT v. G. Pgnatale  124 ITR 391. The Commissioner had not dealt with this argument advanced on behalf of the assessee.
3(ii). He submitted that it was not necessary for an individual to maintain separate books of account as understood in business parlance.
In the case of an individual, the bank pass books themselves would serve the purpose of books of account. Accordingly, he submitted that it was not necessary for the assessee to maintain books of account to prove that the calendar year was the accounting year. Reliance was placed on the order of the Tribunal in IT Appeal No. 1265 to 1267 (Hyd.) of 1975-76.
3(iii). Lastly, it was argued that under the relevant clauses of the Agreement for Avoidance of Double Taxation between India and the Federal Republic of Germany, the previous year for the assessee for Indian assessment has to be the same as the previous year for assessment in Germany and no tax was leviable under the Indian Income-tax Act on incomes assessed in Germany. He relied upon a letter dated 7-7-1976 from Lurgi Mineraloltechnik GMBH to the effect that the assessee's previous year for German income-tax assessment was the calendar year and also tax had been paid in Germany.
3(iv). The last argument was elaborated on the following lines : According to Article II(g), a resident in the Federal Republic of Germany will not be a resident in India and vice versa. Article XII(3) prescribes that an individual, who is resident of the Federal Republic of Germany shall not be taxed in India on the profits or remuneration referred to in paragraph (1) if he is temporarily present in India for a period or periods not exceeding in the aggregate 183 days during a relevant previous year. This means that a person who is a resident in the Federal Republic of Germany will not be taxed in India unless his stay in India exceeded 183 days, i.e., if a person is to be taxed in India his stay here should exceed 183 day Since the previous year for the assessee has to be the calendar year, he was non-resident in India during the calendar years 1975 and 1976. The Indian income-tax has prescribed, a minimum period of 182 days of stay in India for being considered as a resident. If residence was to be determined in accordance with the Indian Income-tax Act then in any particular previous year, an assessee could stay for 182 days in India and become a resident and for remaining part of the year, i.e., 183 days, he could stay in Germany and become a resident there also. Thus, a person could be a resident in two countries which would lead to incongruous result It was precisely for this purpose that Article II(g) clarified that a resident in one Republic cannot be treated as a resident in other Republic and further the period of stay of 183 days in India was fixed under Article XII(3) in order to attract liability to Indian income-tax. Since the main purpose of the Agreement to avoid double taxation was to see that what was taxed in one country was not taxed in the other country, harmonious construction of the various clauses of the agreement demanded that the previous year for assessments in both the countries should be the same and what was taxed in one country was not taxed in the other. The letter from Lurgi Mineraloltechnik GMBH dated 7-7-1976 clearly established that the assessee had paid tax in Germany on the Indian income and further the previous year was the calendar year. On the above grounds, he submitted that there was no error in the order of the ITO and the order of the Commissioner 263 should be set aside.
4. The learned departmental representative urged that the assessee himself had submitted a return showing the remuneration received from MCPL under the head 'Salaries' and the previous year as the financial year. MCPL was not authorised to revise the returns as the power of attorney in their favour did not give them this authority. He submitted that the facts in G. Pgnatale's case were different. In G. Pgnatale's case the Indian company paid the French company who paid their employees in return, while, in the present case, the Indian company has made the payment to the assessee abroad. The liability to pay could be said to arise in India 70 of the Indian Contract Act, 1872. MCPL had further applied for exemption 10(6)(viia) which applied in cases of employee Hence, he submitted that the income of the assessee should have been taxed under the head 'Salaries' in one assessment year, i.e.
4(i). He further submitted that there was no source for the assessee in India before 27-8-1975 and, therefore, the question of keeping accounts for an earlier period did not arise at all. Relying on the decision of the Andhra Pradesh High Court in Addl. CIT v. K. Ramachandra Rao  127 ITR 414, he argued that the assessee can have the benefit of a different previous year only if he had made up his account It was also submitted that if the remuneration received by the assessee was not salary, it has to be under other sources and under the circumstances, the previous year for that source could only be the financial year. It was not clear whether tax had been paid by the assessee in Germany and the amounts paid by the Indian company. The previous year had not been dealt in the Double Taxation Avoidance Agreement. The assessment will have to be done under the respective tax laws as per Article XVI (1).
Hence the previous year has to be determined in accordance with the Indian Income-tax Act. Taking the previous year of the assessee as the financial year in the absence of books of account and the source of income as 'other sources', it is not possible to hold that the assessee was not taxable in India. He submitted that the order of the Commissioner should be upheld.5. We have given careful consideration to the arguments advanced on both side Article II(1)(g) reads as follows Article II- (1) In the present Agreement, unless the context otherwise requires : (g) the terms 'resident of the Federal Republic' and 'resident of India' mean, respectively, a person who is resident in the Federal Republic for the purposes of Federal Republic tax and not resident in India for the purposes of Indian tax and a person who is resident in India for the purposes of Indian tax and not resident in the Federal Republic for the purposes of Federal Republic tax. A company shall be regarded as resident in the Federal Republic, if it is incorporated in the Federal Republic or its business is wholly managed and controlled in the Federal Republic ; a company shall be regarded as resident in India, if it is incorporated in India or its business is wholly managed and controlled in India.
From the above, it is clear that when once a person is treated as resident in India, he cannot be treated as a resident in the Federal Republic of Germany and vice versa. It, therefore, follows that the question of resident has to be tested with reference to the same span of time. Thus, if the previous year of the assessee in Germany is the calendar year, it is to be presumed that the assessee could be treated as resident in India, if he is so, in the same calendar year.
Otherwise, it would lead to an anomalous position that the assessee would be resident in Germany for the assessment year 1976-77 with reference to the calendar year 1975, while for the same assessment year, the assessee will be resident in India taking a different span of time, viz., the financial year. If the residence is considered under different spans, Article II(1)(g) would become meaningless and, in fact, the agreement for avoidance of double taxation would become infructuou This view is further supported by the provisions of Article XII(3) which reads as follows : Article XII - (3) An individual who is a resident of the Federal Republic shall not be taxed in India on the profits or remuneration referred to in paragraph (1) if (a) he is temporarily present in India for a period or periods not exceeding in the aggregate 183 days during a relevant 'previous year' (b) the services are rendered for or on behalf of a resident of the Federal Republic, (c) the profits or remuneration are subject to Federal Republic tax, and (d) the profits or remuneration are not deducted in computing the profits of an enterprise chargeable to Indian tax.
Even taking the calendar year for purposes of determining the residence in both the countries, let us take a case where an assessee has stayed in India for 182 day Article XII(3) prescribes that such a person will not be taxed in India since his period of stay in India does not exceed 183 days although according to the Indian law, he will be resident. If he is resident in India he could not be resident in the Federal Republic of Germany. But Article XII(3) prescribes that the individual has to stay for more than 183 days in India in order that his income could be taxed in India. This provision is specifically introduced to avoid the difficulty of being treated as the resident in both the countrie Looking to the Scheme of the Double Taxation Avoidance Agreement, the conclusion is inescapable that the previous year of the assessee for the assessment in the two countries has to be the same and in this case, it is the calendar year, as this has already been accepted as the previous year in Germany. Since the stay of the assessee in India in each of these years did not exceed 183 days, he has to be treated as a resident in Germany. Therefore, we hold that there was no error in the orders of the ITO.6. The argument of the learned departmental representative that MCPL was not authorised to file revised returns on behalf of the assessee is rejected for the reason that it does not arise out of the order of the Commissioner 263. The Commissioner has not considered the order of the ITO erroneous insofar as it is prejudicial to the revenue on this ground. We have, therefore, given our decision on merit 7. In the result, the orders of the Commissioner are set aside and the appeals allowed.