SINHA J. - This is a reference under section 66 (1) of the Indian Income-tax Act made by the Appellate Tribunal in respect of two applications which were consolidated. The subject-matter of this reference is the assessment of the 'assessee' for the years 1945-46 and 1946-47. It arises out of I. T. A. Nos. 5990 and 5991 of 1956-57 before the Appellate Tribunal, Bombay Bench. The facts are briefly as follows : The assessee is a company having its registered office in London. On the 29th October, 1948, the assessment of the assessee was made under the Indian Income-tax Act for the assessment years 1945-46 and 1946-47. The status of the assessee was taken to be 'resident and ordinarily resident' in the taxable territories. At the time when the two assessments were made, no question was raised by the assessee about any assessment having been made or likely to be made in Pakistan, and no application was made for taking any steps under the provisions of the Agreement for the Avoidance of Double Taxation between Indian and Pakistan (hereinafter referred to as 'A. A. D. T.'). In fact, not only was the assessment made, but the full amount of tax was paid on 10th December, 1948, in respect of 1945-46 and on the 10th January, 1949, in respect of 1946-47. It is now stated that on the 27th February, 1950, notice was issued by the Income-tax Officer, Karachi, whereby assessment proceedings against the assessee were initiated in Pakistan for the relevant assessment years 1945-46 and 1946-47. It is further stated by the assessee that a letter was written on the 21st March, 1950, to the Income-tax Officer, Central Circle v. Calcutta on behalf of the assessee, intimating to him about the said notice and enquiring as to whether any tax for these years would be payable in Pakistan and whether a refund would be granted in India to the extent of the tax payable by the company in Pakistan. This letter was never received by the said officer. On the 28th March, 1950, another letter was written on behalf of the assessee to the said officer, the relative part whereof is as follows :
'Due to the delay caused in the completion of their assessments in India and the U. K. by the revision of their excess profits tax assessments in India and the need to complete their assessments in the Indian States, it will not be possible for us to submit on their behalf their regular claims in respect of the reliefs due to them by the end of the current month.
In accordance with our practice, therefore, we, on behalf of the said company, hereby lodge generally their claims to all double or treble taxation reliefs that may be due to them on account of any tax paid in the U. K., any Indian State or centrally administered area or Burma and undertake to submit their regular claims in respect of such reliefs as soon as we are in a position to do so. We shall be obliged if you will, as in the past, confirm that their claims have been duly registered and their applications in respect of them will be admitted as and when they are made after 31st March, 1950.'
On the 23rd May, 1950, a similar letter was written, the relevant part whereof is as follows :
'As stated in our letter under reference, we are anxious to know whether there can be any liability to tax in Pakistan for the earlier years (1944-45 to 1946-47) by reason of the fact that the assessment for any of these years was completed in India after 1st April, 1948. We do not see the basis for any such assessments in Pakistan for the years prior to 1947-48 under the Agreement for the Avoidance of Double Taxation between the two Dominions. In any event, we shall be glad if you will confirm that any such tax that may be payable in Pakistan will be refunded by India.'
In answer to the last-mentioned letter the Income-tax Officer informed the assessee that its letter of the 21st March, 1950, had never been received. He further proceeded to say as follows :
'Regarding the points raised in the penultimate paragraph of your letter dated 23rd May, 1950, I am not now in a position to say whether there can be any liability to tax in Pakistan for the assessment years 1944-45 to 1946-47. However, if any assessment is raised in Pakistan for any of these years, the question as to whether the tax payable in Pakistan will be refunded by India will be considered on your furnishing the necessary particulars and the certificate of assessment in Pakistan for that year.'
The proceedings by the Pakistan authorities appear to have been completed on or about the 15th December, 1953. On the 30th December, 1953, a claim was made on behalf of the assessee in respect of assessments for the years 1945-46 and 1946-47, a copy of which appears in the paper-book at pages 40-41. It will appear from the claim, that what was asked for is that certain abatements should be granted. There was no mention of any refund. The only particulars given were of a consolidated sum denoting the income arising in Pakistan for the relevant assessment years followed by the amount of income-tax and super-tax thereon calculated at the rate of 81 ps., from which the D. T. T. relief already granted has been deducted, showing the 'abatement due', which was claimed. On the 2nd February, 1954, the Income-tax Officer intimated to the assessee as follows :
'Your claim for abatement and refund under section 49AA submitted in your letter No. A/cs. L. 127 D/O (7386) dated 30th December, 1953, has been rejected as the claim made was much out of time.'
There were two orders made for the two years of assessment, namely, 1945-46 and 1946-47. Against these orders appeals were preferred to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that no relief could be granted to the assessee. He considered the application of the assessee dated 30th December, 1953, to be an application for refund under section 48 of the Income-tax Act, and held that it was barred by limitation and there was no power in the income-tax authorities to condone the same under section 50. Thereupon, there was a further appeal before the Appellate Tribunal. This appeal also failed and was dismissed. Upon this, the assessee made an application under section 66 (1) for a reference, suggesting twelve questions. The Appellate Tribunal considered them and made a reference of the following questions :
'(1) Whether on the facts and in the circumstances of the case the application dated 30th December, 1953, for refund was under section 48 and was competent and within time ?
(2) If the answer to question No. (1) is in the negative, then whether on the facts and in the circumstances of the case the assessee was entitled to abatement under the A. A. D. T. ?
(3) If the answer to question No. (2) is in the affirmative, then whether the assessee had any right of appeal under sections 30 and 33 of the Act against the Income-tax Officers refusal to grant abatement under the A. A. D. T. ?
(4) If the answer to question No. (3) is in the affirmative then whether the appeal to the Appellate Assistant Commissioner was within time ?'
Before we deal with the questions asked, it is necessary to consider the legal position with regard to the avoidance of double taxation between India and Pakistan. At the relevant time the Indian Income-tax Act did not by itself contain any position for the avoidance of the double taxation in foreign territories. There was, however, a provision for enabling such relief to be obtained. The relevant provisions were as follows :
'49A. Relief in respect of Part B State and Dominion income-tax. - (1) The Central Government may, be notification in the Official Gazette, make provision for the granting of relief in respect of income on which have been paid both income-tax (including super-tax) under this Act and either dominion income-tax in one or more countries or Burma income-tax.
(2) For the purposes of this section dominion income-tax means any income-tax or super-tax charged under any law in force in any Part B State or any part of His Majestys Dominions (including the United Kingdom), where the laws of that State or part provide for relief in respect of tax charged on income both in that State or part and in the taxable territories which appears to the Central Board of Revenue to correspond to the relief which may be granted by this section.
(3) For the purposes of this section Burma income-tax means any income-tax or super-tax charged under any law in force in Burma where the laws of Burma provide for relief in respect of tax charged on income both in Burma and in the taxable territories which appears to the Central Board of Revenue to correspond to the relief which may be granted by this section.
49AA. Agreement for avoidance of double taxation in India and Pakistan or the United Kingdom. - The Central Government may enter into an agreement with Pakistan or the United Kingdom for the avoidance of double taxation of income, profits and gains under this Act and under the corresponding law in force in Pakistan or the United Kingdom, and may, by notification in the Official Gazette, make such provision as may be necessary for implementing the agreement.'
These two sections, in the form stated above, were introduced by the Finance Act, 1953. We must clearly understand the difference between the provisions of sections 49A and 49AA. Section 49A provides for relief in certain cases where income-tax has already been paid, both in India and in a foreign country, on the same income which had been charged to tax in both countries. Section 49AA, however, does not grant relief against double taxation which has already taken place, but provides for the avoidance of double taxation. In the former case, tax has first to be paid, and then only arises the right to apply for a refund of the excess payment. In the latter case, provision has been made for avoiding double taxation. This fundamental difference is exemplified by the various notification issued under section 49A of the said Act and the notification issued under section 49AA, to which has been annexed the Agreement for the Avoidance of Double Taxation in India and Pakistan (being Notification No. 28 dated December 10, 1947). The nature of these notifications under sections 49A and 49AA are entirely different. For example, let us consider the 'Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948'. These rules were promulgated by the Central Government by notification, in exercise of the powers conferred by section 49A. The Rules expressly deal with the question of refund. Not only provisions have been made for a claim for refund, but there are provisions for appeal to the Appellate Assistant Commissioner. Of a similar nature is the 'Income-tax (Double Taxation Relief) (Dominions) Rules, 1956'. It does not relate to Pakistan. These Rules were also made by the Central Government, in exercise of powers conferred by section 49A, and deal with the question of refund and provide for an appeal. The A. A. D. T., however, which is annexed to a notification under section 49AA is of a different nature altogether. The Government of the Dominion of India and the Dominion of Pakistan completed an agreement for the avoidance of double taxation on income chargeable in the two Dominions, in accordance with their respective laws. Under section 49AA set out above the Central Government is empowered by notification in the Official Gazette to make such provisions as may be necessary for implementing the agreement. This was what it sought to do by Notification No. 28 dated December 10, 1947. By that notification all the provisions of the said agreement which are annexed to the said Notification 'shall be given effect to in the Dominion of India'. Thereby the provisions of the Agreement have become operative in law. The Agreement is divided into nine articles and contains a Schedule. The relevant articles are as follows :
'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 source or categories of transactions specified in column 1 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 Dominion shall allow an abatement equal to the lower amount of the tax payable on such excess in their (sic) 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 the Dominions, each Dominion shall allow an abatement equal to one-half of the lower amount of tax payable in either Dominion 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) 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 certificate is produced, the abatement shall cease to be operative and the outstanding demand be collected forthwith.
Article VII. - (a) Nothing in this Agreement shall be construed as modifying or interpreting in any manner the provisions of relevant Taxation Laws in force in either Dominion.'
The word 'their' (sic) in Article IV has been held to be 'either'.
The Agreement has a Schedule. The following is a good example of an item in the Schedule. In respect of goods manufactured in one Dominion and sold in the other, through a branch or a selling establishment or a regular agency, the Dominion in which the goods are manufactured would be entitled to charge fifty per cent. and the Dominion in which the goods are sold would be entitled to charge fifty per cent. The broad effect of the Agreement is that each country is entitled to tax only on that portion of the income which accrues within that country, and to take into account the income accruing in the other country only for rate purposes. The Schedule forms a rough and ready estimate of the income that is to be deemed to accrue in the respective Dominions in a specified instance. Thus, from the tax payable in respect of the entire income, an abatement is allowed at the time of making the assessment, in respect of the tax payable in the other Dominion. Where, at the time of making such an assessment, the tax payable in Pakistan is known, which can only be known if the assessment has already been made in Pakistan, then there is no difficulty in allowing or calculating the abatement at once. On the other hand, if at the time of making an assessment under the Indian Income-tax Act no assessment has been made in Pakistan, with the result that the tax payable on the double income in Pakistan is not known, an assessment would be made under the said Act on the basis of the world income, including the income which had accrued in Pakistan, without allowing any abatement, but recovery of the tax equal to the estimated abatement would be held in abeyance for a period of one year. If the assessee produces the certificate of assessment in Pakistan within the period of one year, then the Income-tax Officer is granted the jurisdiction to adjust the uncollected portion of the demand against the abatement allowable under the Agreement. If the assessee cannot produce the certificate within one year, he may apply to the Income-tax Officer for an extension of the period and the Income-tax Officer may at his discretion extend the period. If no such certificate is produced within the year or any such extended period, the outstanding balance of the tax forthwith becomes recoverable.
It is clear therefore that if an assessee desires to avoid double taxation under the A. A. D. T., he must take steps to obtain an abatement at the time of the assessment or see that the Income-tax Officer makes an estimate of the abatement and keeps the same in abeyance. If, however, the assessee has fully paid the tax which has been assessed and has not appealed against the order of assessment, which has become binding, he cannot obtain any advantage under A. A. D. T. and there is no machinery for making an application for abatement in such a case or for applying for a refund. The machinery by which an assessment is made and an application for refund is entertained in a normal case is provided in the body of the Act. A. A. D. T. is no part of the Act itself, and therefore if any benefit is claimed under the A. A. D. T. then the assessee must invoke the special machinery provided therein and cannot go beyond it. As I have already pointed out, the A. A. D. T contains no provision for an application for refund after an excess payment or for an appeal.
I shall now come to the facts of the instant case and investigate the position in law as it arises therein.
I have already stated that the relevant assessment years are 1945-46 and 1946-47. This is prior to the partition of India, and the formation of two Dominions, namely, India and Pakistan. The assessment, however, in India was completed in October, 1948, which is after the partition. During the assessment, the assessee did not put forward the plea that it had income in Pakistan and was entitled to avoid double taxation under the provisions of the A. A. D. T. which had come into existence in December, 1947. On the contrary, the assessment was completed in October, 1948, and in December, 1948, and January, 1949, the full amount of tax for the relevant years was paid. It was only in 1950 that the income-tax authorities in Pakistan commenced assessment proceedings. It is true that the assessee carried on correspondence with the Income-tax Officer in India, but at no time before December, 1953, was any definite claim made for abatement. In March, 1950, and thereafter, letters were written making a general claim to 'all double and treble taxation relief.' In my opinion, this kind of correspondence really amounted to nothing. No particulars were given, and in the absence of particulars, it could not be said that any claim has been made. It appears that in the case of relief against double taxation in the U. K. there is a practice of filing a provisional claim for a refund. There is no such practice in respect of the A. A. D. T. In fact, there cannot be such practice because under A. A. D. T. there cannot arise any claim for refund, as is the case in the case of rules made under section 49A of the Income-tax Act. As I have mentioned above, under the A. A. D. T. all that can be done is to claim an abatement at the time of the assessment and if the tax payable in Pakistan is not known, then the assessee can ask for an estimated abatement and keep the payment thereof in abeyance. In the present case, the time for doing so had long ago expired and assessment orders had been made for the relevant years in October, 1948, and the full amount of tax was paid. After this, there was no scope for asking for an abatement under the A. A. D. T. Perhaps, the assessee could still have agitated the matter of abatement if it had preferred an appeal against the assessment order and the appeal was pending. In such an appeal, it could probably have been contended that since A. A. D. T. applied, the Income-tax Officer should have made the assessment in conformity with Article IV. In the instant case, however, at the time when the claim for abatement was made, viz., in December, 1953, the period of appeal in respect of the assessment orders had long ago expired. Under the circumstances I do not see how the Income-tax Officer could at all deal with the question of abatement at that stage. Perhaps, in appreciation of this difficulty, the assessee thought that the claim of the assessee dated 30th December, 1953, amounted to a claim for refund under section 48. A claim for refund under section 48 was, of course, hopelessly barred by barred by limitation under section 50. It is true that before the income-tax authorities it was contended on behalf of the assessee that the application was under section 48. The application however speaks for itself. It is not an application for refund, but is an application claiming an abatement. Mr. Mitter appearing on behalf of the assessee has argued that under Article IV of the A. A. D. T. the Income-tax Officer was bound to calculate according to the percentage specified in the Schedule and make an estimate of abatement if the tax payable in the other Dominion was not known. Since he must be presumed to have done his duty, it must be held that he did estimate the abatement as 'nil'. There is, therefore, scope for proceeding under Article VI and adjusting the amount of abatement. I am unable to accept this argument. It ignores the facts as they have taken place. At the time of the assessment in India, nothing was mentioned about any income arising in Pakistan or abatement in respect of double taxation. At no time have any particulars been given of any income accruing to the assessee in Pakistan, and no such information was given at the time of the assessment. The Income-tax Officer could not, therefore, have come to know of it by a process of intuition and be aware that this was a case which came under the A. A. D. T. The scheme of the A. A. D. T. is not to find 'nil' abatement and by a process of adjustment grant a refund of monies already paid as tax. At present, there is no outstanding demand capable of being adjusted. As I have mentioned above, the procedure laid down in the A. A. D. T. is clear and is only applicable at a stage when it is possible to avoid double taxation and is quite inapplicable for the purpose of refund. When an assessment order has been made and completed and cannot be challenged in appeal and has also been fully paid up, there is no further scope for proceeding under the A. A. D. T. Under section 48, an application for refund can only be successful if the assessee satisfies the income-tax authorities that the amount of tax paid by him and on his behalf in any year exceeds the amount with which he is 'properly chargeable' under the Act. In such a case he is entitled to a refund of any such excess. Where, however, the assessment order remains as it is, and where nothing can be done about it under Article VI of the A. A. D. T. then the income-tax authorities cannot hold that the amount that has been charged under the assessment order was not 'properly chargeable'. Consequently, an application for refund cannot succeed.
The income-tax authorities have observed that this is a hard case, but have also rightly held that hard cases cannot be allowed to make bad laws. We are in agreement upon this point. Doubtlessly the assessee was confused as regards its rights to relief against double taxation. In fact, even as late as 23rd May, 1960, letters were being written on its behalf contending that there was no basis for assessment in Pakistan for the years prior to 1947-48. It is also evident that if the assessee was not so prompt in its payment, it might have got some relief. That the case is genuine bears no doubt, and have been held to be so by the income-tax authorities themselves. It is, however, not in our hands to grant relief in such a case. The court can only answer the questions put to it, in accordance with the law. We can only express a hope that the authorities may find it possible to be lenient, in a case which richly deserves consideration.
The result is that the questions should be answered as follows :
1. The application dated 30th December, 1953, was not an application for refund under section 48 of the Indian Income-tax Act, but was an application for granting an abatement. If it is treated as an application for refund under section 48 it is barred by limitation under section 50 of the said Act.
2. In the facts and circumstances of this case, the assessee was not entitled to claim abatement under the A. A. D. T. at the stage in which the application was made, nor could the Income-tax Officer grant abatement at that stage. There was no outstanding demand which could be adjusted under the A. A. D. T.
3. No appeal lay against the order of the Income-tax Officer dated 2nd November, 1954, rejecting the claim for abatement.
4. The question does not arise. An appeal might have been preferred against the original orders of assessment, but such appeals have long ago been barred.
There will be no order as to costs.
DATTA J. - I agree.