Skip to content

State Bank of India Vs. Income-tax Officer, a Ward. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 276 of 1962
Reported in[1965]57ITR235(Cal)
AppellantState Bank of India
Respondentincome-tax Officer, "a" Ward.
Cases ReferredCanada v. Attorney
- banerjee j. - the partition of british india and the constitution of dominions of india and pakistan, in the year 1947, brought in their heels many problems, including the problem of avoidance of double taxation of assesses petitioner, state bank of india and pakistan. the petitioner, state bank of india, is confronted with such a difficulty and has approached this court for relief.a bank called the imperial bank of india was constituted under the imperial bank of india act (xl vii of 1920) and took over the undertakings of the then existing presidency banks at bombay, madras and calcutta. the said imperial bank of india had numerous branches, inter alia, in territories now comprised in pakistan. on july 1,1955, the state bank of india act (xxii of 1955) came into force and by virtue of.....

BANERJEE J. - The partition of British India and the constitution of Dominions of India and Pakistan, in the year 1947, brought in their heels many problems, including the problem of avoidance of double taxation of assesses petitioner, State Bank of India and Pakistan. The petitioner, State Bank of India, is confronted with such a difficulty and has approached this court for relief.

A bank called the Imperial Bank of India was constituted under the Imperial Bank of India Act (XL VII of 1920) and took over the undertakings of the then existing Presidency banks at Bombay, Madras and Calcutta. The said Imperial Bank of India had numerous branches, inter alia, in territories now comprised in Pakistan. On July 1,1955, the State Bank of India Act (XXII of 1955) came into force and by virtue of the said Act the entire undertaking of the Imperial Bank of India, along with all its properties, rights and liabilities, devolved on and vested in the petitioner-bank. Assessment of Income-tax was, as such, continued by the income-tax authorities against the petitioner-bank as successor to the former Imperial Bank of India.

In the assessment year 1947-48, the petitioner bank was resident both in India and Pakistan. Consequently, the income accruing in both the countries (apart from foreign income outside both the countries) was included in the computation of income of both the countries, with the result that there arose a possibility of double taxation.

In order of guard against such possibility, section 49AA was inserted in the Indian Income-tax Act, 1922, by the India (Adoption of Income-tax, Profits Tax and Revenue Recovery Act), Order, 1947, which read as follows :

'The Central Government may enter into an agreement with Pakistan for the avoidance of double taxation of income, profits and gains under this Act and under the corresponding law in force in Pakistan and may, be notification in the Official Gazette, make such provision as may be necessary for implementing the agreement.'

Section 49AA was amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948, and the words 'or the United Kingdom' were inserted after the word 'Pakistan' wherever appearing in the section. Thereafter, there was an agreement for avoidance of double taxation in India and Pakistan, entered into between the two countries (then two Dominions) and the said agreement was notified on December 10,1947. In this rule, I below the said articles are set out :

'Article IV - Each Dominion shall make assessment in the ordinary way under its own laws; and where either Dominion under the operation of its laws charges any income from the sources or categories of transactions specified in column I of the schedule to this Agreement (hereinafter referred to as the schedule) in excess of the amount calculated according to the percentage specified in columns 2 and 3 thereof, that Domination shall allow an abatement equal to the lower amount of tax payable on such excess in their Dominion as provided for in article VI.

Article V - where any income accruing or arising without the territories of the Dominions is chargeable to tax in both of the Dominions, each dominion shall allow an abatement equal to one-half of the lower amount of tax payable in either Domination on such doubly taxed income.

Article VI - (a) For the purposes of the abatement to be allowed under article IV or V, the tax payable in each Dominion on the excess or the doubly taxed income, as the case may be, shall be such proportion of the tax payable in each Dominion as the excess or the doubly taxed income bears to the total income of the assessee in each Dominion.

(b) When 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 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 certificate is produced, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith.'

Of the schedule referred to in article IV, I am with item 9 only of the schedule, which I set out below :

Source of income or nature of transaction from which income is derived

Percentage of income which each Dominion is entitled to charge under the agreement






9. Any income derived from a source or category of transactions not mentioned in any of the foregoing items of this schedule.

100 per cent. By the Dominion in which the income actually accrues or arises

Nil by the other

The language of the agreement is a good deal inappropriate at places. So much so that in the case of Commissioner of Income-tax v. Shanti K. Maheshwari, Tendolkar J. Observed that with reference to the agreement 'a cynic may well say that the language has been employed to conceal the thoughts of its authors.'

In dealing with the language of article 4, Tendolkar J. observed in the judgment referred to above (at Page 323) :

'Now in the first instance, it appears to us - and consel at the bar are also agreed - that the word 'their'... in article IV is obviously a slip or an error and could in its context have only been 'either', and it is on the basis of the word being either that we will deal with the meaning to be attached to article IV. Indeed if the word were their it may make it somewhat more difficult than it actually is to interpret article IV.'

I do not know how his Lordships could have arrived at the same conclusion, if he had not read 'either', for 'their'. The word 'their' is not synonymous with 'either', the former being disjunctive in character and the latter being not so. Be that as it may, I respectfully agree with his lordships that in order to make article IV, workable, the word 'their' should be read as 'either, His Lordships had one advantages agreed to such a reading. I have not that advantage. I have, therefore, incidentally to see if international agreements containing obvious errors may be corrected or correctly read by the judiciary. In this difficult task I have been greatly assisted by Mr. Sampath Iyengar, learned advocate for the petitioner, and by Mr. Gauri Mitter, learned advocate for the respondents. Regard being had to the nature of the difficulty confronting me in this respect, I sought further assistance from Mr. Subrata Roy Chowdhury, an advocate well known for his studies in international Law, as amicus curice, and I am thankful to him for his able assistance.

The word treaty is a generic term and means any international agreement in written form, whether embodied in a single instrument or in two or more related instruments (called either treaty, convention, protocol, convenient, character, statute, act, declaration, concordat, exchange of notes, agreed minute, memorandum of agreement, modus vivendi or any other appellation) concluded between two or more states or other subjects of international law and governed by international law.

Signature, ratification, accession, acceptance or approval of treaty means in each case the act whereby a State establishes, on the international plane, its consent to be bound by a treaty. Signature, however, may also mean, according to the context, an act whereby a State authenticates the text of a treaty without establishing its consent to be bound.

After treaties are made, particularly treaties between members of the United Nations, it is necessary to have such treaties registered and published in the manner provided by article 102 of the character of U United Nations. The said article were reads as follows :

'1. Every treaty and every international agreement entered into by any member of the United Nations after the present charter comes into force shall as soon as possible be registered with the Secretariat and published by it.

2. No party to any such treaty or international agreement which has not been registered in accordance with the provisions of paragraph 1 of this article may invoke that treaty or agreement before any organ of the United Nations.'

Like all human productions, international treaties may contain errors due to mistakes, omission or inadvertence. Such errors may be too numerous for classification but many of them fall under one or the other of the following general heads :

1. Apparent gaps in treaties, causing hardship or levying problems insoluble.

2. Verbal errors due to use of inappropriate expression in the documents, which do not bring out the sense.

3. Typographical errors in engrossing the signed document of treaty.

4. Disconformity amongst multilingual treaties due to use of inappropriate synonyms.

5. Inadvertent error in dates or in dating the treaty.

6. Errors in spellings and punctuations.

7. Omission to incorporate an agreed clause in the signed copy of the treaty.

Municipal courts in different countries have sometimes dealt with errors or gaps or omissions in treaties in order to consider the effect thereof, to some of which I propose to refer :

'(A). In the case of Isay v. Emergency Tax Appeal Committee (noted in Lauterpachts Annual Digest and Reports of Public International Law Cases 1935-37; Case No. 217 at page 465), an assessee under the Swiss and German properties amounted to taxation of his German properties, amounted to taxation of his German property and income in Switzerland and thus constituted double taxation in contravention of the German Swiss Treaty of July 15,1931. The Swiss Federal Tribunal examined the provisions of the treaty and found that it enumerated the objects subject to taxation and provided which of the contracting parties was to tax the various categories of income. But the Tribunal was unable to find any provisions regarding the method of taxation and more particularly as to deduction of debts and expenses. The Tribunal agreed that this may lead to double taxation, if the other state concerned did not modify its own method of deduction. However the Tribunal said : It is not the task of the court to supplement the treaty or to provide a solution where the treaty failed to do so. The court must confine itself to the statement that the treaty does not provide any rules for this contingency and that therefore the decision must be arrived at by the reference to municipal law which is not fettered by the treaty.

(B). In the Minority Treaty (Russian Subjects) case (noted in Lauterpachts Annual Digest and Reports of Public International Law Cases 1931-432; Case No. 201 at page 359-60) the District of Court of Torgau, Germany, had to deal with a divorce case, in which the plaintiff wife, a Russian subject married the defendant who was born that part of Poland which was part of Czarist Russia. The defendant came to Germany but never acquired German nationality. At this stage he marred the plaintiff in 1918. There was a treaty between allied powers and poland known as Treaty concerning the protection of Minorities made in the year 1919. By article 4 of the treaty it was provided that all persons of German, Austrian, Hungarian or Russian nationality who were borne in Poland of parents habitually resident there should ipso facto acquire polish nationality even if, at the date of the coming into force of that treaty, such persons were not habitually resident in poland. Russia was not party to the treaty and the treaty had not any legal effect on Russia. On the other hand there was the Russo-polish Peace Treaty of 1921 (Treaty of Riga), which provided that all persons over eighteen years of age, who shall be resident in former Russian now polish territory, at the date of the ratification of the said treaty, shall acquire polish nationality unless they exercise an option for Russia. Conversely, all persons resident in a territory adjacent to poland, which belonged or belongs, to Russia, shall retain their Russian nationality unless they exercise an option for poland. The same treaty provided that provisions with regard to option were also applicable to persons who were resident neither in Russia nor in poland. The defendant did not opt. As to such persons there was an obvious gap in the provisions of the treaty. It was held that the obvious gap in the provisions of the treaty must be filed by constructions and it must be held that the nationality of the person in question did not change where no option had been exercised.

(c) In the case of Sanchez v. Consorts Gozland (noted in Lauterpachts Annual Digest and Reports of Public International Law Cases 1931-32 : case No. 2004, pp. 369-371) before the court of Cessation, Civil Chamber, in France, there arose the question of the right by aliens to invoke the law of June 30, 1926, commonly known as the law on commercial property, which regulated the relation between tenant and landlord with regard to the renewal of leases for premises used for commercial or industrial purposes. Article 19 of the law, as amended by the law of April 22, 1927, provided that the law itself could not be invoked with certain exceptions, by persons of foreign nationality engaged in commercial or industrial enterprises and being nationals of status which had not enacted similar legislation in their territories for the protection of the commercial property of French nationals. In this case Sanchez, a tenant of spanish nationality, invoked the France-Spanish Convention of January 7, 1862, arguing that it provided for reciprocity and thereby enabled him under the law of 1926 to claim that the landlord should renew his lease for commercial premises. The court interpreted the convention and held that it implied not that the nationals of each contracting party should enjoy all the rights enjoyed by nationals but only that the their recognised rights, derived from international law alone, should be exercised by Spaniards in France under the same conditions as by Frenchmen in Spain. In the course of the judgment the court the court observed, 'In litigation concerning private civil rights the ordinary courts are competent to determine the meaning and scope of treaties.'

(D) In re Cie Rederi-Aktiebolaget Svensks Lloyds application (noted in Lauterpachts Annual Digest and Reports of Public International Law Cases 1919-42, Supplementary Volume, page 229), the applicant asked the Censeil D Etat to interpret article 1 of the Treaty of Commerce and Navigation of December 30, 1881, between France and Norway-Sweden. The Censeil D Etat refused to supply the interpretation with the observations, 'In France it is only the French Government which can determine the meaning and scope of this convention.'

(E) In the case of Society Levy Fils v. Credit Industrial D Alsace et de Lorraine (noted in Lauterpachets Annual Digest and Reports of Public International Law Cases 1919-42, Supplementary Volume, page 231). The court of Appeal at Lyons (France) had to consider article 17 of the Franco-German Armistice Convention of June, 1940, and observed :

In view of the fact, in particular, that the prohibition in article 17 is addressed to the French State itself in that the latter guarantees the execution of this prohibitory clause, and as the Armistice Convention constitutes not only a treaty intended to govern private law interests but is in the highest degree a treaty the meaning and scope of which is of a public International order, the interpretation of the terms of such a document can be given only by the High Contracting Parties.'

G. H. Kackworths Digest of International Law, vol. v. contains an interesting digest of cases, falling under some of the general heads of errors and omissions in treaties, hereinbefore referred to, and the manner in which they were resolved or left unresolved. I quote hereinbelow an extract from article 478 of the book containing some examples :

'I. Concerning two suggested changes in the Norwegian text of the commercial treaty between the United States and Norway, 4 Treaties etc. (Trenwith, 1938) 4527, which had been signed by both parties but not ratified either, Secretary Kellogg wrote :

'The first of these changes is merely a correction of a verbal error made in the preparation of the Treaty... The second change is designed to make the Norwegian text correspond more exactly with the English...

Since the Treaty has not been ratified on either part, the Norwegian Minister has been informed that these changes may be made and initialed in the margin opposite them in the United States original by the Minister and Secretary of State, and in the margin opposite them in the Norwegian original by the Norwegian Minister for Foreign Affairs and you. The Minister has stated that he deems this method of making the changes a practicable one................. It is thought advisable that the initialing of the two originals should take place on the same day.....'

II. The general treaty of Inter-American, Arbitration, signed at Washington on January 5,1929, 4 Treaties etc. (Trenwith, 1938) 4756, was found to have an error in the Portuguese text - the treaty having been drawn up in English, Spanish, Portuguese and French. The Brazilian Ambassador requested a correction. The Department of State took the position that although this was an obvious clerical error, it was not competent to change the original treaty without the written consent of all governments for which the treaty was signed and requested such governments to give their consent....

III. Typographical errors found in the trade agreement with Costa Rica after signature and before rectification by Costa Rica were corrected and initialed on the Costa Rican original by the American Minister to Costa and the Costa Rican Minister of Foreign Affairs; and on the American original by the Costa Rican Minister to the United States and the Secretary of State...

IV. When several errors were found in the extradition treaty between the United States and Liberia, signed at Monrovia on November 1,1937, the Department of State instructed the Minister to Liberia to sign the treaty anew after correction of the errors. On August 30,1938, the treaty was re-signed as of November 1, 1937. It was usually been referred to as the treaty signed November 1, 1937...

V... Procedure for making proposed substantive changes in agreement has been definitely settled. A protocol of Amendment will be drawn up in both languages to be signed by the Secretary and by the Czechoslovak Minister. The protocol will be proclaimed as soon an possible and will take effect on the same date as the trade agreement, namely, on April 16, 1938, and should be ratified as a part of the trade agreement by the Czechoslovak Government....

VI. The convention for the ratification of the Rio Grande, signed by the United States and Mexico on February 1, 1933, 4 Treaties etc. (Trenwith, 1938) 4462, made reference to the 'Convention of November 20, 1905'. After the convention had been sent to the senate for its advice and consent to ratification, it was discovered that the reference was erroneous and that it should have read 'convention of March 20, 1905'. At the request of Secretary Hull, President Roosevelt asked the Senate to give its advice and consent, subject to an amendment making this correction. This was done and the United States ratified the convention with this amendment. The Mexican Original of the convention was modified by crossing out the word 'November' and writing in the word 'March', the modification being initialed by the American Ambassador to Mexico and the Mexican Minister of Foreign Affairs....

VII. After the ratification by Greece of the treaty of establishment of November 21, 1936, 4 Treaties etc., (Trenwith, 1938) 4296, but before the United States had ratified, a typographical error was found in the American original. The Greek Government gave its approval to the correction of the error...

VIII. The naturalization convention between the United States and Peru, 2 Treaties etc. (Malloy, 1910), 1449. was signed on October 15, 1907, and ratified by the President of the United States on March 9, 1908, pursuant to the advice and consent of the senate. The Peruvian Government thereafter found minor errors in the spanish text and wished to alter these so that the Spanish text would confirm more closely to the English. Secretary Root instructed the American Minister :

When the department knows the precise form in which the Peruvian Congress has actually ratified the article in question, the change can be initialed in the Spanish text without any difficulty so long as as no change is made in English text which the United States has ratified. The procedure would be for and the Peruvian Minister for Foreign Affairs to initial the change in the margin of the Peruvian original, and for the Secretary of State or Acting Secretary of State and the Peruvian Minister at Washington to initial the change in the United States original. At the time of making the change a Protocol may be signed in this form :

The undersigned, being authorised by their governments thereto, having this date met for the purposes of making a change in the Spanish text of the Naturalization Convention between Peru and the United States, signed on October 15, 1907, to make it conform more exactly to the English text, have made the change therein as follows :

(State the substitution) and have initialed the same.

The alternations were made in the manner suggested....

IX. Numerous errors of spelling and punctuation in the Spanish text of the American exchange copy of the extradition treaty and protocol of 1904-7 with spain 2, Treaties etc. (Malloy, 1910) 1712, were found after the United States had ratified treaty and protocol and sent the ratifications to Madrid for exchange. It seems that ratifications were exchanged in Madrid before the errors were corrected. The Department of State instructed the American Minister as follows :

All these discrepancies consist merely of errors in orthography or punctuation. None is of sufficient importance to involve the resubmission of the treaty and protocol to the senate. The Department is, however, of the opinion that they should be corrected before the treaty is proclaimed by the president, and that the most practicable way of doing this is for the Spanish Government to cable to its Minister here authority to correct them in our original, attaching a protocol specifying the errors and initialing with the secretary of state, or other authorised person on part of the United States, each correction in the margin of the original. Similar authority could in turn be cabled to you to make any corrections of errors of like character contained in the original in the possession of the Spanish Government.

The corrections were made in the manner suggested.......

X. An Arbitration treaty, in English and Spanish, was signed by Chile and the United states, on January 13, 1909. he Senate gave its advice and consent on January 20, 1909, and the President ratified it on March 1, 1909. On September 10, 1909, the Chilean Minister of Foreign Affairs Submitted an amended Spanish text to the department, which the department thought was a more accurate rendition of the English text than that originally made and which it thought could be substituted without alteration of the intent and meaning of the English text. The English text had been accepted and ratified without change by the Chilean Parliament and Executive. Prior to the departments suggestion to the President that the amended Spanish text might be submitted to the senate, the solicitor for the department of State wrote :

'The text the Chilean Government desires to be substituted for the Spanish text of the original... the proposed text... is the more accurate and idiomatic rendition of the English text.

The convention having already been approved by the Senate and ratified by the President of the United States, the query is raised as to the procedure which should be followed to effect the substitution... it is submitted that these changes are so serious as to necessitate a ratification of the treaty by the senate in case it is desired to incorporate the changes proposed in the official print of the treaty. It is understood that theoretically both the English and Spanish texts are before the Senate and both are of equal dignity. The Senate advises and consents to the ratification of both as I understand it......

XI. When the British Embassy pointed out certain errors in the French text of the Load Line Convention of July 5, 1930, 4 Treaties etc. (Trenwith, 1938) 5287, which had already been ratified by the United States, the Department of State replied that it was without authority to make any alteration in the text of the convention as acted upon by the Senate and ratified by the United States....

XII. The international convention for promoting safety of life at sea, with annexed regulations, was signed at London on May 31, 1929. By inadvertence one paragraph was omitted from regulation of annexure. The British Government proposed that the convention be amended by the insertion of the omitted paragraph. The Acting Secretary of State wrote :. as it is evident that the omission of the said paragraph was unintentional, and that its inclusion in Regulation XI is necessary in order to complete the signed convention in accordance with what was written as a requirement by the sub-committee on structures and openings, of the London conference, the Government of the United States would be favourable to the acceptance of the paragraph.

Since, however, the inclusion of the provision would be in the nature of an amendment of the signed convention its acceptance and ratification by all the governments signatories of the convention will be required......

On March 24, 1933, the British Ambassador transmitted to the secretary of state of a copy of a certificate of the British Foreign Office on January 17, 1933, to the effect that the amendment discussed above had been duly accepted by all parties to the convention. The United States ratified the convention without amendment on July 7, 1936, and deposited ratification in London on August 7, 1936. Concerning the amendment, secretary Hull wrote :

A modification of the convention could be accepted by the United States, pursuant to the to the above quoted provision of article 61, only in accordance with its established procedure, that is, by and with advice and consent of the Senate and ratification by the President in pursuance of such advice and consent...

The proposed modifications was not before the Senate when that body gave its advice and consent to ratification of the Convention on June 19, 1936, and it is, therefore, not included in the instrument of ratification. The modification will, however, be submitted to the Senate at its next session, with a view to receiving the advice and consent of that body to its separate ratification......

The United States ratified the amendment on June 9, 1937, after the Senate had given its advice and consent on May 28, 1937, and deposited its ratification. Concerning the deposit the Counselor of the American Embassy in Great Britain (Johnson) telegraphed :. The British Government considers the amendment as being in force as from January 17, 1933, all the then parties in the convention having agreed to it. After that date any country which ratified the convention was considered to have ratified the amendment as well..

XIII. Ratification of the treaty of friendship, commerce and consular rights, signed on June 15, 1931, by the United States and Poland, were exchanged on June 9, 1933. 4 Treaties etc. (Trenwith, 1938) 4572, when the Polish Government wished to modify the Polish text of the treaty by substituting the word naruszalby for the word nasuwalby, Secretary Hull replied :

You state in effect that the purpose of the substitution desired by your Government is to have in the Polish text a word of exact and accurate equivalence with the word interfering appearing in the same sentence in the English text, and that this modification would not change the intention of the Contracting Parties that the treaty should not interfere with their rights to enact or enforce statutes concerning the protection of national labour, but would be merely a correction of a presumably typographical error.

In view of the forgoing explanation and of the fact that the proposed substitution would in no wise alter the language or affect the meaning of the English text, the intention being merely to bring the Polish text into closer correspondence with the English text, the Government of the United States accepts the proposed substitution of the word 'naruszalby' for the word 'nasuwalby' in the last sentence of article 1 of the treaty, and will appropriately note the substitution on the United States original of the treaty upon being informed that the change has been made on the Polish original...

The correction was made....

XIV. After the United States had ratified the International Load Line Convention of July 5, 1930, 4 Treaties etc. (Trenwith 1938) 5287, the British Government transmitted a proposal by the Netherlands Government concerning modifications in the rules in annexure 1 as the most practical way of simplifying their application in countries using the metric system. The British Government indicated agreement to the proposed modifications, which it thought did not necessitate any amendment of the convention. The Under Secretary of State replied that :. as the proposed modifications in no way alter the English text of the convention or affect the equivalence of the French text with the English text, this government is in agreement with his Majestys Government in the United Kingdom that the modifications represent the most practical way of simplifying the application of the rules in those countries in which metric measures are in use, and that the proposal does not necessitates any amendment of the convention.

When the Department of State their inquired what other countries had accepted the corrections proposed by the Netherlands Government and what steps the British Government was taking with respect to the correction, the British Embassy listed the States which had expressed their willingness to accept the corrections and stated that :

Since the errors found in the original text of the Convention and Rules were all of minor importance, and as the modifications in the French text recently proposed by the Netherlands Government represent merely the most practical way of simplifying the application of the rules in annexure 1 to the convention in those countries in which metric measures are in use the competent authorities do not propose to arrange for the circulation of certified corrected copies of the Convention and Rules.

XV. The Secretariat of the League of Nations, in a circular letter of June 15, 1934, called attention to certain errors in drafting the Narcotics Convention of July 13, 1931, 4 Treaties etc. (Trenwith, 1938) 5351, and suggested certain interpretations which had been approved by the Council of the League of Nations to correct these errors. Inquiry was made whether these interpretations would be approved. The Department of State replied that the American Government accepted the interpretations as a basis for application of the convention,'

In the fourteenth Session of the International Law Commission of the United Nation General Assembly, Sir Humphrey Waldock (Special Repporter) contributed an addendum to the report on Law of Treaties, more or less, following the views expressed in Hackworths book, which is of interest in this context;

'I. Where a typographical error or omission is discovered in the text of a treaty for which there is no Depository after the text has been signed, the signatory States shall by mutual agreement correct the error either :

(a). by having the appropriate correction made in the text of the treaty and causing the correction to be initialed in the margin by the representatives duly authorised for that purpose;

(b). by drawing up and executing a separate protocol or process verbal setting out the errors in the text and the corrections which the parties have agreed to make to the text or;

(c). by preparing a corrected text of the whole treaty of executing it afresh in the same manner as the erroneous text that is being replaced.

2. The provisions of paragraphs 1 shall also apply mutatis mutandis to any case where there are two or more authentic texts of such a treaty which are discovered not to be concordant and the parties are agreed in considering that the wording of one of the texts is inexact and requires to be amended in order to bring it into harmony with the other text or texts.

3. Whenever the text of a treaty has been corrected or amended under the proceeding paragraphs of the present article, the corrected or amended text shall be deemed to have come into force on the date of the original text, unless the States concerned shall otherwise decide.


Errors and inconsistencies are not uncommonly found in the texts of treaties and it seems desirable to include provisions in the draft articles concerning methods of rectifying of them. The present article deals with the situation where an error is discovered in a bilateral treaty or in a plurilateral treaty for which there is no depository; and also with the situation where there are two or more authentic texts of such a treaty and they are discovered not to be concordant. In these case, the correction of the error or inconsistencies would seem to be essentially a matter for agreement between the signatories to the treaty. Neither the Harvard Research Draft, Satows Diplomatic Practice nor the reports of previous Repporters contain any information on this question; and in formulating the provisions of the present article the Special Repporteur had had regard primarily to the precedents given on pages 93 to 101 of volume V of Hackworths Digest of International Law.

The normal techniques used for correcting errors appear to be those in (a) and (b) of paragraph I. Only in the extreme case of a whole series of errors would there be any occasion for starting afresh with a new text as contemplated in paragraph (c); since, however, one such instance is given in Hackworth, the United States Liberia, Extradition, Treaty of 1937, the Special Rapporteur has included a provision allowing for the substitution of a completely new text.

The same technique appears to be appropriate for the rectification of discordant texts where there are two or more authentic texts in different languages. Thus, a number of the precedents given in Hackworth concern the rectification of discordant passages in one of two authentic texts; for example, the Commercial Treaty of 1938 between the United States and Norway (page 93) and the Naturalisation Convention of 1907 between the United States and Peru (page 96).

Since what is involved is merely the correction or rectification of an already accepted text, it seems clear that unless the parties otherwise agree, the corrected or rectified text should be deemed to operate from the date when the original text came into force. On the other hand, it would not be right to say that it should be deemed to date back to the adoption of the original text, since that might complicate the position where a faulty text has been submitted by one or the other party to its legislature for approval or ratification.

The illustrations given in Hackworths Digest illustrate the moods of different subjects of International law in the matter of errors or omissions which creep into treaties. The solution suggested in the report of Sir Humphrey Waldock, hereinbefore set out, however, reasonable, has to be universally accepted in international level, before, it becomes a solution at all. Municipal courts, however, have no power to impose any unilateral solution.

Lord McNair in his book entitled the Law of Treaties (1961 edition), however, felt the necessity of implementation of treaties through courts of law and expressed his view in the following language :

'Part 1 : Chapter IV - There are certain treaties which do not, and are not, intended to produced municipal effects, though they may affect the general well being of the contracting parties; for instance, a treaty of alliance or neutrality, a treaty guaranteeing independence or neutralization. We can place them on one side. The vast majority of treaties can be well implemented if all branches of the Government by the contracting parties -legislature, administrative and judicial-possess or are forthwith invested with the necessary legal power to implement the treaty.....

In the case of some States, of which the United States of America is a type, certain treaties automatically acquire municipal effect and, for that purpose, supersede existing laws and existing treaties. Thus article VI of the American Constitution provided that :

This Constitution and the Laws of the United States which shall be made in pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be Supreme of Law of the Land; and the judges in every state shall be bound thereby, anything in the Constitution or Law any state to the contrary notwithstanding...'

Article VI must, however, be regarded as enacting a general principle, for although treaties become the Supreme law of the land, some treaties, require legislative action before they can receive effect in American courts. Thus in 1829 in Foster v. Nelson, Chief Justice Marshall said :

'Our Constitution declares a treaty to be a law of the land. It is, consequently, to be regarded in courts of Justice as equivalent to an act of the legislature, whenever it operates itself, without the aid of any legislative provision. But when the terms of the stipulation import a contract - when either of the parties engages to perform a particular act, the treaty addresses itself to political, not the judicial department, and the legislature must execute the contract before it can become a rule for the court...

In this manner of the municipal effects of treaties, the United Kingdom affords a sharp contrast to the United States. In the United Kingdom as we shall see, with a very limited class of exceptions, no treaty is self-executive; no treaty requiring municipal action to give effect to it can form of a statute or in some other way. Whenever a treaty, or anything done in pursuance of it, is likely to come into question in a court of law or require for its enforcement the assistant of a court of law, the question at once will arise whether any action required on the part of the executive or the Courts of Law to give effect to the provisions of the treaty is or is not already authorised by the existing law of the land. If the answer to this question is in the negative, the Crown must induce Parliament to legislate so as to make the necessary change in the Law or to equip the Crown with the necessary power to execute the treaty. If Parliament declines to do so, the Crown will not conclude the treaty, if per incuriam the crown has already done so, the United Kingdom is bound by it, for the crown is internationally omnicompetent in the matter of treaties and the crown must do its best to extricate the country from an embarrassing situation. Even the fact that the treaty has been duly concluded and is internationally binding upon the United Kingdom does not enable a British Court to give effect to it municipally if it should conflict with the law of land.'

At pages 83 to 94 in Chapter IV of the Law of Treaties, the learned author refers to three classes of treaties, where Parliamentary sanction is required in the United Kingdom for their municipal execution and application and must be given in the form of a statute, namely;

(i) Treaties requiring for the execution and application in the United Kingdom a change in or addition to the law administered in the courts.

(ii) Treaties requiring for their application in the United Kingdom that the Crown shall receive some view powers not already possessed by it.

(iii) Treaties creating a direct or contingent financial obligation upon Great Britain.

The learned author also refers to the convention prevailing in the United Kingdom whereby treaties involving cession of British territory are submitted for approval by Parliament and to the policy prevailing in the United Kingdom whereby the Crown consults Parliament in the matter of the treaties, I am, therefore, not concerned with those aspects in this rule.

Under the Constitution of India, article 51, under the heading 'Directive Principles of State Policy', enjoins :

'The state shall endeavour to -...

(c) foster respect for international law and treaty obligation in the dealings of organised people with one another.'

Article 253 provides that :

'Notwithstanding anything in the forgoing provisions of this Chapter, parliament has power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body.'

Lastly, Sch. VII, entry 14, invests in the Parliament the power to make laws in respect of :

'Entering into treaties and agreements with foreign countries and implementing of treaties, agreements, and conventions with foreign countries.'

If Parliament had made laws for implementation of the Indo-Pakistan agreement above referred to, a municipal court might have interpreted that law. But no such law has been made and the courts are helpless in face of error. In the case of Attorney-General for Canada v. Attorney-General for Ontario, the Privy Council adverted to this aspect with the following very pertinent observation :

'The question is not how the obligation is to be formed, that is the function of the executive; but how is the obligation to be performed and that depends upon the authority of the competent legislatures.'

Without legislative aid, I would surely have been compelled to leave article IV of the agreement as incapable of rational interpretation but for a reason to which I shall presently refer.

I find from the Income-tax Manual (First edition) issued by the Central Board of Revenue, Government of Pakistan, the following passages (at page 214) :

'In respect of assessments to which the agreement applies, the avoidance basis will operate as follows :

Each country will determine the total income of the assessee in the ordinary way under its own laws, but in respect of the sources of income or categories of transaction specified in the schedule to the Agreement, it is entitled to retain tax on such portion of the income therefrom as is calculated according to the percentages shown in the schedule. The remaining portion can be included in the total income for purposes of rate if it is so includible. And, if it is actually charged, the country which is not entitled to retain the tax thereon, will give credit for the lower amount by the tax payable thereon in either country'

In the Income-tax Manual (Tenth edition) issued under the authority of the Central Government of India (at page 54) the identical passage appears, with the only alteration that in places of 'Each country' and 'either country' as in the Pakistan version, the words used are 'Each Dominion.' and 'Either Dominion'. Thus, both India and pakistan read 'their Dominion' in article IV as 'either Dominion'. Both the countries made article IV workable and meaningful on the correct reading of the same. Neither country has as yet raised any point that with the word 'their' for 'either', the article is unmeaning and incapable of being worked. I do not propose to raise a ghost myself and become terrified. I therefore read either for 'their' in article IV, because India and Pakistan have been proceedings on that reading.

Although I do so, I express the hope that both India and Pakistan will soon have the agreement rectified by resort to one or other of the internationally recognised methods for correction of international agreements, and save courts of law from embarrassment in trying to interpret an almost unmeaning clause in the agreement.

I need not turn to the main question involved in this rule. In the assessment year 1947-48, the petitioner-bank earned income both in India and Pakistan. For the purposes of computation, the income earned in both the countries was included in the calculation and the gross total income in India was computed at Rs. 4,01,882. Included in the gross total income was Rs. 17,72,715 being gross Pakistan income. Out of the total of Rs. 4,01,37,882 the respondent-Income-tax Officer computed the net assessable income in India at Rs. 3,20,71,256 therein including Rs. 13,88,543 as the net Pakistan Income. According to the petitioner-bank the sum of Rs. 13,88,543 represented the excess referred to in article IV read with article VI of the agreement and abatement should have been calculated on this sum at the lower rate of tax in India or Pakistan, if any. As the rate of tax for the assessments year happened to be the same in both the countries, namely, 7 annas in the rupee, the abatement, according to the petitioner-bank should have been calculated at Rs. 6,07,487.56 np. The respondent Income-tax Officer did not do so. For the purpose of allowing abatement, he took the figure of Rs. 10,37,086, being the amount of Pakistan income assessed by the Pakistan Income-tax Officer and calculating at the rate of 7 annas in the rupee on Rs. 10,37,086 allowed an abatement of Rs. 4,53,725.12np only. This is the first grievance against the assessment urged by the petitioner-bank.

Further, in the order of assessment, which is annexure 'A' to the petition, the respondent-Income-tax officer omitted to allow abatement under article V read with article VI of the agreement in respect of the foreign income earned by the petitioner-bank during the assessment years 1947-48, in territories outside India and Pakistan, namely, in Ceylon, the United Kingdom and Burma, amounting to Rs. 10,47,037. Deducting, from the aforesaid income, excess profits tax and business profits tax the income, under the aforesaid head, liable to income-tax in India was Rs. 8,19,347 and that liable to income-tax in Pakistan was Rs. 9,46,599. As the rate of tax in both the countries for the assessment year happened to be the same, namely 7 annas in the rupee, an abatement at the rate of tax of 3 1/2 annas in the rupee on Rs. 8,19,347 amounting to Rs. 1,79,232 should have been allowed, which was not done. This is the second grievance against the assessment urged by the petitioner-bank.

Feeling aggrieved by the assessment, the petitioner-bank wrote to the Income-tax Officer on April 18,1960, praying for rectification of the order of assessment, in the following language :

'According to article IV of the Double Taxation Avoidance Agreement between India and Pakistan, if it in the Indian assessment the total income as assessed under the provisions of the Indian Income-tax Act includes Pakistan income in excess of the amount chargeable by India by reference to the percentage specified in the schedule to the agreement, the Indian Government is to allow by way of abatement the proportion of the Indian tax or the Pakistan tax, whichever is lower, as provided in article VI. We submit that the words such excess signify that the abatement due in India is to be computed by reference to the Pakistan assessment that income was assessed in the Indian assessment even where in the Pakistan assessment that income was assessed at a lower figure, because the agreement is for the avoidance of double taxation and not for granting relief due to double taxation of certain income. In the circumstances, on the basis of your comparative figures of the Pakistan income (of which 100% is charged by Pakistan and nil by India) the abatement due in India for the assessment year 1947-48 should be computed on Rs. 13,88,543, the Pakistan income as assessed in India, and not on Rs. 10,37,086, the pakistan income as assessed in Pakistan.

It has been provided in article V of the agreement that where any income arising outside India and Pakistan is assessed in both the countries an abatement shall be allowed at 50% of the lower amount of tax payable in either country (as determined in the manner laid down in article VI) on such doubly foreign income. As you will, for the assessment year 1947-48, the assessment was made in Pakistan treating the bank as resident and ordinarily resident, and, in consequence, foreign income was included in that assessment after deduction of the statutory allowance of Rs. 4,500. In your orders under section 49AA, dated February 24, 1960, you do not appear to have allowed that abatement contemplated in article V.....

In view of the forgoing we shall be obliged if you will arrange to rectify your orders under section 49AA, dated 24th February 1960, on the grounds stated in paragraphs 2 and 3 of this letter, at an early date.'

The respondent-Income-tax Officer took into consideration only that part of the petitioners objection which dealt with abatement under article V, passed a fresh order a mistaken understanding of what was done by the pakistan income-tax authorities and allowed abatement to the extent of Rs. 1,03,534.12 nP. in place of Rs. 1,79,232, claimed by the petitioner-bank. The method of computation adopted by the respondent-Income-tax Officer is set out below :


Total foreign income assessed in India


Foreign income included in pakistan assessment


Less : Proportion of business profits-tax paid thereon


Net foreign income assessed in pakistan


Rate of tax in both the Dominions = 84 pies

Therefore, abatement on Rs. 4,73,299 @ 50 Rs. of 84 pies

Rs. 1,03,534.12 nP.

The above calculation was critisied as erroneous for reasons hereinbefore stated.,

I have therefore, to see how far the two criticisms are valid. But before I do so, I have to examine the scope and effect of articles IV, V and VI of the agreement.

Under article IV, there is to be, in the fist place, a separate assessment by each country (namely, India and Pakistan) under its own laws and such separate assessment is the basis of abatement to be allowed under this article. In the next place, the source or category of transaction specified in column 1 of the schedule, which has been brought to tax in the taxable territories, has to be looked into. If there is such a source, the schedule must determine what is the percentage of income from that source which India is entitled to charge under the agreement. If the income form such source exceeds the percentage, then there is an excess for the purpose of article IV. On such excess an abatement shall be allowed under the article equal to, the lower amount as tax payable on such excess in either Dominion as provided for in article VI.

Article V deals with income accruing or arising without the territories of India and Pakistan which is chargeable to tax in both countries. Under this article India and Pakistan shall allow an abatement equal to one-half of the lower amount of tax payable in either country on such doubly taxed income. Explaining the expression 'doubly taxed income', Tendolkar J. observed in the case of commissioner of income-tax v. Shanti Kumar Maheswari :

'In connection with article V, the words 'doubly taxed income', which occur therein need to be carefully noted. The article talks of such doubly taxed income; and clearly, therefore, the reference is to the income which is described in the earlier part of the articles as chargeable to tax in both the Dominions. In other words, the expression 'doubly taxed income' does not connote an income which has been taxed twice over; but the words are equated with income chargeable to tax in both the Dominions; and it is in this sense that the expression 'doubly taxed income' is used in the next article -article VI.'

I respectfully, agree with the explanations given above. Sub-clause (a) of article VI deals with both the cases of abatement under articles IV and V and concerns itself with the determination of tax payable in each country on the income which attracts abatement, in case of article IV and on the 'excess' and in the case of article V on the 'doubly taxed income', that is on the income chargeable to tax in the both the countries. The article provides that the abatement to be allowed shall be such proportion of the tax payable in each country as the excess or the doubly taxed income bears to the total income of the assessee in each country. When the tax payable in India on the excess becomes known, it becomes also necessary to know the corresponding figure of tax payable in Pakistan, because it is the lower amount of tax payable in either country which is to be granted as the abatement. The tax payable in Pakistan becomes known only after the total amount of the income of an assessee in pakistan and the tax payable by him has been ascertained, otherwise the formula in article VI cannot be worked out.

I am not concerned in this rule with clause (b) of article VI of the agreement, which deals with cases where the tax payable on the total income of the other country is not known. In the instant case that figure is known.

Turning now to the application of article IV of the facts of the instant case, I find the Indian Income-tax Officer took the net pakistan income of the petitioner-bank at Rs. 13,88,543, and inclusive of that figure arrived at the total assessable income of the petitioner-bank at Rs. 3,20,256. He did not, however, take Rs. 13,88,543, as the 'excess' under article IV. He took into consideration the assessment of income-tax on the petitioner-bank in pakistan and form that arrived at the figure of Rs. 10,37,086, as the amount of the petitioners pakistan income assessed to tax in Pakistan.

Mr. Sampath, Iyengar, learned advocate for the petitioner-bank, contended that the words, 'such excess' in article Iv meant that abatement due in India was to be computed by reference to Pakistan income as assessed in India assessment, even if it in the pakistan assessment that income was computed at a lower figure. Alternatively, he contended that if pakistan assessment of income in pakistan was of relevant consideration, then the net assessable income in India should have been computed by including therein Rs. 10,37, c86, (namely, the amount of the petitioners pakistan income as assessed in pakistan) and not Rs. 13,88,543, (namely the figure of the petitioners pakistan income as calculated by the Indian Income-tax Officer).

The principal argument of Mr. Iyengar was sought to be repelled, on behalf of the respondents, with the contention that the argument was devoid of realism. If the petitioners pakistan income amounted to Rs. 10,37,086 it must not aspire to get abatement on Rs. 13,88,543.

In my opinion, the principal argument advanced on behalf of the petitioner-bank deserves to be sustained. Under article IV, India is at liberty to make assessment, under its own law, of both Indian and pakistan income. In so doing Indian authorities are not to be inspired by what pakistan does. In making such assessment Indian authorities mar determine or calculate what income an assessee derived under the source mentioned in item 9 of the schedule (which includes pakistan income). In determination made by Pakistan,. For the purposes of Indian income-tax such determination or calculation, as may be made by Indian authorities. Whether more or less than or equal to that made by the Pakistan authorities of relevant consideration. Under item 9 India charges nil thereon-the rate of tax at the relevant period being the same. That being so, I hold that the abatement should have been calculated at Rs. 6,07,486.56 nP. as contended by Mr. Iyenger.

Mr. Iyengar further contended that in respect of income accruing outside the territories of India and Pakistan, namely Rs. 10,46,057, the pakistan Income-tax Officer included half of the amount, namely, Rs. 5,28,218, in the assessment made by him, thereby providing relief in respect of the other half of such income at full rate of tax. The Indian income-tax officer erred in assuming that in pakistan half the total amount of foreign income was taxed and as such allowed abatement on the half of the such income. In this criticism, Mr. Iyengar, is right. The basis of the calculation under article V should have been hereinbelow indicated :

Income without the territories of India and pakistan


(that is to say foreign income)




Proportionate business profits tax


Proportionate excess profits tax



Net foreign income taxed in india


Tax thereon @ 7 as.


Abatement allowable 50% of the Indian tax


That being, the position, I hold that the Income-tax Officer was wrong in allowing an abatement of Rs. 1,03,534.12 nP. only, according to calculation made by him and hereinbefore set out.

In the result I quash that assessment made by the respondent-income-tax Officer, direct him to reassesses the petitioner-bank and allow abatements as hereinbefore indicated. Let a writ of ceritiorari and a consequential writ of mandamus accordingly issue. There will be no order as to costs.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //