DULAT J. - This is a reference under section 66(1) of the Income-tax Act made by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax, and it arises out of the assessment of income-tax concerning the assessment year 1947-48.
The assessee company had its registered office in Lahore before the Partition. Between June, 1946, and March, 1947, the assessee paid to the Income-tax Officer at Lahore advance tax under section 18A of the Indian Income-tax Act amounting, in all, to Rs. 36,783-8-0. In March, 1952, the Income-tax Officer, Business Circle, Delhi, made an assessment in respect of the assessment year 1947-48 calculating the total income at Rs. 38,916 which was, however, reduced on appeal to Rs. 36,574. Before the Appellate Assistant Commissioner the assessee claimed credit in respect of the advance payment made at Lahore which was, of course, more than the tax payable according to the assessment order, but that claim was negatived on the ground that the amount paid by the assessee to the Income-tax Officer at Lahore had been adjusted against an assessment order made by the Lahore income-tax authorities in January, 1948. The assessee then went in appeal to the Income-tax Appellate Tribunal, and that Tribunal formed the opinion that, because of section 18A(11) of the Indian Income-tax Act, the assessee was entitled to credit for the sum he had paid at Lahore and was further entitled to a refund of the excess. On this view the Appellate Tribunal directed the demand against the assessee to be quashed and appropriate refund to be made. The Commissioner of Income-tax then applied to the Income-tax Appellate Tribunal to refer the questions of law arising in the case to this court, and that Tribunal, finding that two questions of law did arise, has referred the following questions for our opinion :
'(1) Whether the assessee was entitled to have an adjustment of the advance tax paid by it under section 18A of the Indian Income-tax Act in Lahore for the assessment year 1947-48 against the demand of tax raised by the Income-tax Officer, 3rd Additional Business Circle, New Delhi, for the assessment year 1947-48 ?
(2) Whether the order of the Tribunal directing a refund to the assessee out of the advance tax paid by it in Lahore is legal and valid ?'
The answer to the second question, of course, depends on the first, and it is the first question alone which requires consideration.
It is quite clear that at the time the advance payment of tax was made at Lahore, the Indian Income-tax Act was applicable to Lahore, so that the payment must be taken to have been made under the Indian Income-tax Act. Sub-section (11) of section 18A of the Act says :
'Any sum other than a penalty or interest paid by or recovered from an assessee in pursuance of the provisions of this section shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the financial year next following the year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment.'
As I have said already, the money in question was paid in pursuance of the provisions of section 18A. If, therefore, the direction contained in sub-section (11) of that section is to be obeyed, credit has necessarily to be given to the assessee at the time of the regular assessment. This is precisely the view which the Income-tax Appellate Tribunal has taken. The Tribunal has, in that connection, depended to some extent on a decision of the Allahabad High Court, L. Dwarka Dass v. Income-tax Officer, Special Circle, 'A' Ward, Kanpur, but, apart from that decision, the language of the Income-tax Act, section 18A, does not leave much room for the contrary view.
Mr. Hardy for the Commissioner of Income-tax urges that although the advance tax was adjustable against the demand raised against the assessee on a regular assessment, such adjustment was not in the present case possible. Before then the Pakistan income-tax authorities raised a demand against the assessee on the 28th January, 1948, and in part satisfaction of that demand wiped out the amount standing to the credit of the assessee. It is, however, obvious that what may have been done by the Pakistan authorities in January, 1948, cannot be called a proceeding under the Indian Income-tax Act, and the fact that the money paid by the assessee under the Indian Income-tax Act may have been seized by the Pakistan authorities or disposed of in some other manner, can in no way affect the right of the assessee under the Indian Income-tax Act. That right is clearly expressed in sub-section (11) of section 18A, and the income-tax authorities in India are, in my opinion, bound to obey the direction contained in that provision. The Income-tax Appellate Tribunal was, therefore, right in holding that the assessee was entitled to credit for the advance tax which had been paid at Lahore under the Indian Income-tax Act and, since the advance tax actually paid was in excess of the tax found due on regular assessment, the assessee was entitled to a refund of the difference. I would, in the circumstances, answer both the questions in the affirmative and allow the assessee the costs of the present proceedings. Counsels fee Rs. 100.
FALSHAW C.J. - I agree.
Questions answered in the affirmative.