COMMISSIONER .OF INCOME-TAX; DELHI Ac"ID RAJASTHAN v. M/S. BHARAT CARBON AND RIBBON MANUFACTURING CO. December 17, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.J Indian Independence Act (10 & 11 Geo Vic. 30), 18(3) and Income Tax Act ( l l of 1922), s. I 8A ( l l )-Advance tax-Adjusted by Pakistan Oovenunent~lf could also be adiust.ed by Indian Govf!rnment. Between June 1946 and March 1947 the assessee,.company1 which then l1ad its head office at Lahore, paid advance tax to the Income.tax Officer, Lahor.e,, under s.
,l 8-A of the Indian Income-tax Act, 1922. For the :assessn1ent year J 947-48, the assessment was completed by 'the Pa)cistan Jncome4ax Officer on 28th January 1948 after adjus!ing the advance in- come-tax paid.
The Income-tax Officer, New Delhi, assessed the tax for the same year 1947-48 in 1952. The assessee contended that credit '.3hOuld be given to him .. of the'""a~ance tax paid by him in Lahore under s. 18-A(ll). The. claim was disaflmved_by the Appellate Assistant Com- missioner but the Appellate Tribunal, <1nd-the High Court on a reference, held in favour of the p.ssessee.
In app_eal to this Court, 'HELD: The effect of s. 18(3) of the Indian In"dependence Act was to change the incidents of the advance tax paid. Previously it was to be –=:; d adjusted to\vards a single regular assessment to be made. by British India ….. ~ After the Independence Act, the advance tax was ,liable to be adjusted .against t\vo regular aS<Se6sments, one by India and one by Pakistan. Jn Pakistan, under s. 1SA(11). the Pakistan Government was enti11ed to adjust the advance tax paid by the assessee against its demand. Similary, the Government of India was entitled to
adjust the amount against its demand. It follows that if –the assessee had' been given cred:t for the _. advance tax, by the Pakistan Government, he cannot claim that credit '8hould be given to him by the Indian income-tax authorities. [174 B-D] D•varka Das v. Income-t~x Officer, 'Kanpur, 29 I.T.R. 60 refCrred to. CIVIL APPELLATE JURISDICTION : Cjvi! Appeal No. 106 of
1965. Appeal by special leave frollf the judgment and order, dated November 13, 1962 of the Punjab High Court (Circuit Bench) at Delhi in Income-tax Reference Case No. 3 of 1959. A. V. Viswanatha Sastri, Gopal Singh and R. N. Sachthey,
for the appellant. B. L. Khanna and K. K.- Jain, for the respondent. The. Judgment of the Court was de~ivered by Sikri, .T. This appeal by special leave is directed against the judgment of the High Court of Punjab, at Chancligarh in· a reference made to it under s. 66 ( 1) of the-Income Tax Act, 1922, SUPllEME COUllT REPOllf5
[1966} 3 S.C.ll. turing Co., hereinafter referred to as the assessee, at Rs. 38,916 and directed that demand notice and chalan be issued. Before the Appellate Assistant Commissioner one of the points taken up by the as!CSsee was that credit should be given to him of the advance tax paid by him in Lahore, under s. 18A( 11) which reads as follows: "Any sum other than a penalty or interest paid by
or recovered from an assessee in pursuance of the provi- sions 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." The Appellate Assistant Commissioner disallowed the claim. He observed : "I, however, find that the amount under Section 18-A
was paid by the assessee to Income-tax Officer, Lahore. The same Income-tax Ollicer made an assessment for this very year on 28th January, 1948 on a total income of Rs. 1,22,014 for Income tax and Rs.
52,780 for capital gains. He worked out the total tax payable by the assessee at Rs. 76,472/6. As a result of this assessment, even after setting off the tax paid under Section 18-A of Rs. 4 7,513 an amount of Rs. 20,000
was still due from this assessee. The amount under Section 18-A, has, therefore, been adjusted by the Pakistan authorities towards the payment of tax and the assessee cannot take credit for this amount again. Under
these circumstances, it must bo held that there was no balance of tax paid under Section 18-A left to be adjusted by the Income-tax Officer for the Indian assessment." The assessee filed an appeal before the Appellate Tribunal. The Tribunal allowed the claim on the ground that the language of '· I RA (I I ) was mandatory, and it was the duty of the Income. tax authorities to give credit for the amount paid by the asscssec as advance tax in the regular assessment made under the Indian Income Tax Act.
It observed : c "What the Income tax authorities would do or may have done to the advance tax paid to the Income-tax Olficer, Lahore, is entirely immaterial." ii . ….. C. I. T. v. BHARAT CARBON CO. (Sikri, /.)
At the instance of the Commissioner of Income Tax a refer- ence was made to the High Court. The High Court held that if the direction contained in s. 18A ( 11) had to be obeyed, credit had necessarily to be given to the assessee at the time of regular assessment.
In reply to the argument of the learned counsel for the Commissioner of Income Tax that no adjustment was possible because the Pakistan authorities had already raised a demand against the assessee on January 28, 1948, and in part satisfaction of that demand wiped out the amount standing to the credit of the assessee, the High Court observed :
"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 sei;red 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."
In the result, the High Court answered both the questions in the affirmative. Mr. A. V. Viswanatha Sastri, the learned counsel for the appellant, contends before us that by virtue of s. 18(3) of the Indian Independence Act, the Income Tax Act as it existed before the coming into force of the Indian Independence Act, applied both to the Dominion of Pakistan and the Dominion of India, and the result of this simultaneous application to both the Dominions was that the advance tax paid by the assessee was liable to be adjusted ~gainst the assessments made both in Pakistan and in India, and Pakistan having made the adjustment, there was no money left to be adjusted against the assessment in India. The learned counsel for the respondent relies on the reasoning of the High Court and on Dwarka Dass v. Income-tax Officer, Kanpur(') and says that it was the obligation of the Government of India under s. 9 of the Indian Independence (Rights, Property and Liabilities) Order, 1947, either to refund th.e money paid as advance tax or to give credit in the assessment in India.
Section 18 ( 3) of the Indian Independence Act reads as follows: "Save as otherwise expressly provided in this Act, the law of British India and of the several parts thereof (I} 29 I. T.R. 60.