Holding

The assessee is entitled to relief against double taxation on its Pakistani business profit, leaving out the agricultural loss, which must be allowed in computing total income but cannot be set off for abatement under the Agreement.

Summary

Carew & Co. Ltd., an Indian resident company, earned income from business in India, a manufacturing business in Pakistan and incurred a loss from agricultural property in Pakistan for the assessment year 1956-57. The Income‑Tax Officer allowed a set‑off of the agricultural loss against the Pakistani manufacturing profit, resulting in a modest abatement of tax under the India‑Pakistan Agreement. The company appealed, seeking full abatement on the manufacturing profit and a set‑off of the agricultural loss against its total Indian income. The Supreme Court held that agricultural income from land situated in Pakistan is not "agricultural income" within the meaning of the Indian Income‑Tax Act and therefore is taxable in India; the loss may be deducted while computing total income but cannot be set off for the purpose of obtaining relief under Article IV of the double‑taxation Agreement. Consequently, relief is available only on the full manufacturing profit, excluding the agricultural loss. The appeal by the tax department was dismissed.

Issues considered

The applicability of Article IV of the India‑Pakistan Agreement for Avoidance of Double Taxation to agricultural income arising in Pakistan.
Whether a loss from agricultural property in Pakistan can be set off against business profit from Pakistan for the purpose of tax abatement under the Agreement.
Interpretation of Section 49D(3) of the Income‑Tax Act, 1922 in relation to agricultural income taxed in Pakistan.
The definition of "agricultural income" under Section 2(1) of the Income‑Tax Act, 1922.

Legislation cited

Business (Profits) Tax Act, 1947
Excess Profits Tax Act, 1940
Finance Act, 1953s. amendment inserting Section 49A
Income Tax Act, 1922s. 2(1), s. 4(1) third proviso, s. 49A, s. 49D(3), s. 6
Notification No. 28 dated 10‑December‑1947

Subjects

double taxationtax abatementIndia‑Pakistan tax treatyagricultural lossset‑offSection 49DArticle IVtotal income

Judgment

633

C. I. T., WEST BENGAL III, CALCUTTA A
v.
CAREW & CO. LTD·
September 13, 1979
[N. L. UNTWALIA AND R. S. PATHAK, JJ.]
n·
Abatement' of tax under the Agreement for Avoidance of Double Taxation
in India and Pakistan-Set off of loss of income in agricultural properties
whether allowable under the Indian Incon1e Tax Act, 1922-Sections 49A,
49D (I) (3) of-Income Tax Act, 1922 read with Articles IV and VI of the
AgrP.ement-Scope of.
...'
Respondent, Carew and Co. Ltd., was resident in India having its Registered c
Office in Calcutta. During the assessment year 1956-57, for which the corres-
ponding previous year ended on June 30, 1955, the sources of the income of
the Company \Vere from (a) business in India and interest earned in India
on securities; (b) manufacturing business in Pakistan and (c) agricultural
properties in Pakistan. For thei relevant year the assessee.). Indian income
' as computed by the Income Tax Officer was Rs. 2,01,329 from business and
Rs. 373 from interest on securities. The total of the two items was D
Rs. 2,01,702. The profit from assessee's manufacturing business in Pakistan
v.·as computed at Rs. 3,26,368. In respect of the agricultural property, how-
ever, there was loss and it was determined at Rs. 3,20,839. The Income
Tax Officer deducted by way of set off the agricultural loss of Rs. 3,20,839
against the profit of the manufacturing business amounting to Rs. 3,26,368.
The net profit of the assessee thus determined in respect of the two sources
in Pakistan was Rs. 5,529. Deducting the statutory figure· of Rs. 4,500 from E
the above net profit of Rs. 5,529 he gave the company relief against double
taxation on the figure of Rs. 1,029 only_, The assessee by filing a revised
return claimed abatement on the entire profit from its manufacturing business
in Pakistan i.e. Rs. 3,26,368 and also set off of the whole amount of
Rs. 3,20,839 from the total income determined in India. The Appellate
Assistant Commissioner affirmed the decision of the· Income Tax Officer. · But in
second appeal to the Appellate Tribunal, it was held by the Tribunal that the
assessee was entitled to abatement of tax under the Agreement on the entire profit
from manufacturing business earned in Pakistan during the relevant year. Since
)

'"("
_,,.. the agricultural income of the assessee in respect of its agricultural properties in
Pakistan was to be treated as taxable income in India, the loss was allowable under
the Indian Income Tax Act, 1922. The· High Court on a reference agreed with
• the Tribunal's view. Hence the appeal.
G
Dismissing the appeal, the Court
HELD:
Per Untwalia J.
,/- 1. The assessee was entitled to the relief against double taxation in
accordance with the Agreement leaving out of consideration the figure of
loss of Rs, 3,20,839/- incurred in its agricultural hctivities in Pakistan, albeit H
the said loss had to be taken into account and adjusted against the assessee's
profit in India. [642 F-G]
634 SUPREME COURT REPORTS [1980] 1 S.C.R.

A 2. While computing the total income of the assessee, the income or the
loss, as the 'n~e ma.y be, from agricultural property in a foreign country had
to be added to or adjusted in the assessee's total income. Obviously it will
be an income "from other .sources" within the meaning of clause (iv) of
Section 6 of the Income Tax Act, 1922. So also the assesree's income from
business in Pakistan had to be added to the figure of his profits and gains of
business in India. The statutory deduction of Rs. 4,500 had to be granted
B under the third proviso to section 4(1) of the Act. The exclusion of the
agricultural income as mentioned in clause (viii) of sub section (3) was
to be granted only if it was an agricultural income as defined in Section ;c_
2(1). Otherwise! not. Income from agricultural lands situated in Pakistan
was not agricultural income within the meaning of the Indian Income Tax •
Act. Income Tax was, therefore, chargeable on the said income. Similarly
if there is a figure of loss from agricultural lands situated in Pakistan, it
c has got to be deducted, while computing the total income of the resident
assessee in India. [637 G-H, 638 A·CJ ' .

Kumar Jagdish Chandra Sinha v. Comn1issioner of lncome Tax, West
Bengal, 28 I.T.R. 732 (Calcutta) approved.

If the assessee's agricultural income in Pakistan was chargee·ble to tax
D there, then relief in respect of such income could be granted to the resident
assessee only in· accordance With sub clause (3) of Section 49-D of the Indian
Income Tax ACt, 1922. Such a case would not be covered by any of the
Articles of the Agreement for .Avoidance of Dot1ble Taxation in India and
Pakistan which was entered into and was followed by notification No. 28:
dated 10th December 1947 published in the official gazette. [638 G·H, 639 DJ

E In the instant case, since in the relevant year no amount of tax was
charged or paid in Pakistan by the assessee, e:ither because such income was
not chargeable there or because the net figure was a figure of loss, in the
matter of calculation of' relief against Double Taxation &ub·section (3) of
sectiOn 49D .was not attracted at all. The loss had simply to be allowed in
India, while computing the assessee's total income because, if there were
any figure of profit from agricultural lands in Pakistan the same could have
F been added in the total income of the assessee. [639 D·E]

Section 49D(1) of the Income Tax Act, 1922 is attracted for giVIng
relief against double' taxation only if the income derived by the assessee i&
from a foreign country with which there is no reciprocal arrangement between
that country and India for relief for avoidance of double tamtion. In case
of Palislan, there being a reciprocal agreement, the relief has to 'be granted
G only under it. [639 F-G]

The scheme of the Agreement is (the phraseology of Article IV) quite
different and distinct from what is provided in sub-section (1) of Section 49(D)
of the Income Tax Act 1922. Therefore the view of the High Court on
interpretation of Articles IV and Vl of the Agreement is quite correct. It
is significant to note that in Article. IV, the wording.'i are "where either
H Dominion under the operation of its laws, charges any income from the
source.J or categoriis of transactions specified in column 1 of the Schedule
to this Agreement". The various items in the Schedule clearly indicate that
c.r.T. v. CAREW & co. 635

if the sources. or categories of transactions are to be clubbed together and A
not treated separately then ·it will be difficult, almost impossible, to give effect
to the Agreement with reference to the Schedule. [640 C, 642 B-D]

K. V. Al. '!i.1. Ramanathan Ch~ttiar v. Commissioner of lnco1ne Tax, Madras,
88 IT.R. 169 (S.C.); explained.

Per Pathak]. (Concurring)
( 1) Since agricultural income does not fall within the scope of the Agree-
ment for the Avoidance of Double Taxation the loss su'ffered by the respon-
dent company in agricultural operations in Pakistan cannot be set off
against the business income arising or accruing in that country for the
purpose of determining the abatement due to the respondent under the
Agreement. In the absence of such a set off the respondent is entitled to
a rebate in respect of the entire business income from Pakistan. [644 A-C]
c
(2) Article IV of the Agreement in view of Article I must be construed
as relating to assessments made in the two countries under the Indian Income
Tax Act, the Excess Profits Tax Act and the Business Profits Tax Act only.
For the purpose of abatement under Article IV of the Agreement, the primary
condition is that tax under these enactments should be leviable in both
countries. on income from the sources or categories or transaction specified
D
in the Schedule to the Agreement. In the present case, which relates to
an aassessment in India under the Indian Income Tax Act for the assessment
year 1.956-57, in respect o.f that assessment year agricultural income· arising
in Pakistan \Vas not lin.ble to tax in Pakistan under the Indian Income Tax
Act as applied in that country. Consequently, any agricultural income arising
··~ or accruing in Pakistan cannot be considered for the purpose of abatement E
under the Agreement for the Avoidance of Double Taxation. [643 D-F]

(3) When statutory provisions are referred and cases are cited before the
Court on a point involving double taxation, the distinction between the
two concepts of "avoidance of double· taxation" and the "relief against double
taxation" evidenced by the two clauses of Section 49 A of the Indian Income Tax
Act, and the difference in same degree from each other of these two concepts as F
embodied in the respective schemes must be borne in mind. One important feature
distinguishing the two concepts lies in this, that in the case· of avoidance of double
taxation the assessee does not have· to pay the tax first and then apply for relief in
the form of refund, as he would be obliged to do under a provision for relief
against double taxation. [644 C~E]

• CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2097 of 1978, G
From the Judgment and Order dated 8-7-1971 of the Calcutta
lligh Court in I.T.R. No. 35/67.
S. C. Manchanda, S. P. Nayar and Miss A. Subhashini for the
t\ppellant.
H
.; K. Sen, D. N. Gupta and T. A. Ramachandran for the Respon-
den!
636 SUPREME COURT REPORTS [1980] 1 S.C.R.

A The following Judgments were delivered :
UNTWALIA, J. This is an appeal by certificate and in it is involved
an important question of law as to the interpretation of Article IV of
the "Agreement for Avoidance of Double Taxation in India . and
Pakistan", hereinafter called the Agreement. The only case on the
B point decided by ally Court in India so far brought to our notice is
!hoe decision of the Calcutta High Court, which is under apl'eal, re-
ported in Commissioner of Income-Tax, West Bengal Ill v. Carew &
Co. Ltd.(') ,
Carew & Company Ltd., the respondent in this appeal, was resi-
C , dent in India ·having its Registered Office in Calcutta.. The concerned
assessment year is 1956-57. The correspondmg previous year of the
Company ended on June 30, 1955. During the relevant period the
sources of income of the respondent company were from (a) business
in India and interest earned in India o'n securities; (b) manufactur-
ing business in Pakistan and ( c) agricultural properties in Pakistan.
D For the relevant year the assessee's Indian income as computed by the
I'ncome-Tax Officer was Rs. 2,01,329/- from business and Rs. 373/-
from interest on securities. The total of the two items was
Rs. 2,01, 702/,. The profit from assessee's manufacturing business
in Pakistan was computed at Rs. 3,26,368/-. In respect of the agri-
cultural property, however, there was loss and it was determined at
E Rs. 3,20,839/c-. The Income-Tax Officer deducted by way of set-off
the agricultural loss of Rs. 3,20,839/- against the profit of the manu-
facturing business amounting to Rs. 3,26,368/-. The net profit of
the assessee thus determined in respect of the two sources in Pakistan
was Rs. 5,529/-. Deducting the statutory fignre of Rs. 4,500/- from
the above net profit of Rs. 5,529/-, he gave the Company relief against
F double taxation on the figure of Rs. 1,029 /- only. Initially, the
assessee asked for abatement of tax on Rs. 5,529/- but subsequently
by filing a revised retutn it claimed abatement 011 the entire profit
from its 'manufacturing business in Pakistan i.e. Rs. 3,26,368/- claim-
ing at the same time a set-off of the whole amount of Rs. 3,20,839/-
from the total income determined in India. The Appellate Assistant
G Commissio~er affirmed the decision of the Income-Tax Officer, as in
•
his opinioh, Article IV of the Agreement permitted relief only on the
amount of net profit of Rs. 5,529/- from which, of course, the statu-
tory deduction of Rs. 4,500/- had to be made. The assessee Com-
pany, however, succeeded when it took the matter in second appeal to
ff the Appellate Tribunal. It was held by the Tribunal that the assessee
was entitled to abatement of tax nnder the Agreement on the entire
(1) 87 l T. R. 459.
C.I.T. v. CAREW & co. (Untwalia, !.) 637

profit from manufacturing business earned in Pakistan during the rele- A
vant year. Since the agricultural income of the assessee in respect of
its agricultural properties in Pakistan was to be treated as taxable in-
come in India, the loss was allowable under the Indian I'ncome-tax Act,
1922, hereinafter called the Act. The final conclusion drawn by the
Tribunal was in these terms :-
B
"Now, therefore, the position is that the assessce has :
( 1) income from business in Pakistan, which is taxed 100
per cent there; (2) loss in agriculture, which is not taxed
there. Therefore, whereas relief has to be given on the taxed
business incom~ in Pakista'n under the aforesaid Agreement
for Avoidance of Double Taxation, no question of relief c
arises on the loss in agricultural income. In this view of the
matter, the rebate granted only ou the difference between the
business profit and agricultural loss in Pakistan amounts to
negation of the assessee's right to receive abatement of tax
on income taxed in Pakistan.
D
In our opinion, therefore, income-tax relief has to be
given on the Pakistan business income i'n accordance with
the provisions of the aforesaid agreement without setting it
off against the agricultural loss."
At the instance of the Commissioner, Income-tax, Bengal the E
Tribunal referred the following question of law to the High Court for
its opinion.
"Whether, on the facts and in the circumstances of the
case, the Tribunal was right in holding that relief should be
given to the assessee on its Pakistan business income in
F
accordance with the provisions of the Agreement for Avoid-
ance of Double Taxatio'n between the Government of India
and Pakistan without setting off against it the loss in agricnl·
tural operations in Pakistan ?"
In agreement with the .conclusions arrived at by the Appellate Tribu-
nal the High Court answered the references in favour of the assessee. G
• Hence this appeal by the department.
It could not be and was not disputed that while computing the
total income of the assessee the income or the loss, as the case may
be, from agricultural property in oa foreign country had to be added
to or adjusted in the assessee's total income. Obviously it will be an H
income from other sources within the meaning of clause (v) of
Section 6 of the Act. So also the assessee's income from business in
638 SUPREME COURT REPORTS [1980] 1 S.C.R,

A Pakistan had to be added to the figure of his profits and gains of busi-
ness in India. The statutory deduction of Rs. 4,500 /- had to be gran-
ted under the third proviso to section 4 ( l) of the Act. The exclu-
sion of agricultural income as mentioned in clause (viii) of sub-section
(3) was to be ,granted nlny if it was an agricultural income as defined
in section 2(1). Otherwise not. The Calcutta High Court in the
8
case of Kumar Jagdish Chandra Sinha v. Commissioner of Income-Tax,
· West Bengal(') had rightly held that income from agricultural lands
situated in Pakistan was not agricultural income within the meaning
of Indian Income-Tax Act. Income-tax was, therefore, chargeable on
the said income. This view of the law is beyond any dispute or pale
c of attack. Similarly if there is a figure of loss from agricultural lands
sitooted in Palcistan, it has got to be deducted while computing the
total income of the resident assessee in India.

In the Act of 1922 were inserted sections 49A, 49B, 49C and 49D
by the Indian Income-tax (Amendment) Act, 1939, Act 7 of 1939.
D Subsequently was inserted section 49AA which became section 49A
with effect from the 1st April, 1953 by virtue of section 3 of the
Finance Act, 1953. The marginal note of section 49A reads-"Agree-
ment for granting relief in respect of double taxation or for avoidance
thereof." It provides : -
"The Central Government may enter into an agreement-
E
( a) with the Government of any country outside India for
the granting of relief in respect of income on which
have been paid both income-tax (including super-tax)
under this Act and income-tax in that country, Dr
(b) with the Government of any country outside India for
F the avoidance of double taxation of income, profits
and gains under this Act and under the correspond-
ing law in force in that country;
and may, by notification in the official' Gazette, make such
provisions as may be necessary for implementing the agree-
G
ment." •·
The Agreement for Avoidance of Double Taxation in India and Paki-
stan was entered into and was followed by notification No. 28 dated
the 10th December, 1947 published in the official Gazettec In section
49D there were no sub-sections prior to the Amendment Act of 1953
but after its amendment new provisions were added and the said sec-
tion thereafter ·consisted of four sub-sections. For the purposes of this
(I) 28 I. T. R. 732.
C.I.T. v. CAREW & co. (Untwalia, /.) 639

appeal I shall read only sub-section (3). It runs as follows : -
"If any person who is resident in the taxable territories in
any year proves that in respect of his income which accrues or
arises to him during that year in Pakistan he has paid in that
country, by deduction or otherwise, fax payable tc:i the Gov-
I• ernment under any law for the time being in force in that B
country relating to taxation of agricultural income, he shall
be entitled to a deduction from the Indian income-tax payable
by him-
('a) of the amount of the tax paid in Pakistan under any
law aforesaid on such income which is liable to tax
under this Act also; or
c
(b) of a sum calculated on that income at the Indian rate
of tax;
whichever is less."
It should be noticed that if the assessee's agricultural income in Pakistan
was chargeable to tax there, then relie.f in respect of such income D
could be granted to the assessee only in accordance with sub-section
(3). Such a case would not be covered by any of the Articles of the
Agreement. Since in the relevant year no amount of tax was charged
or paid in Pakistan by the assessee, either because such income was
not chargeable there or because the net figure was a figure of loss, in
the matter of calculation of relief against Double Taxation sub-section
(3) of section 49D was not attracted at all. The loss had simply to
be allowed in India while computing tbe assessee's toial income, be-
cause, if there were any figure of profit from agricultural lands in
Pakistan the same could have been added in the total income of the
assessee. F
Section 49D(l) is attracted for giving relief against double taxation
only if the income derived by the assessee is from a foreign country
with which there is no· reciprocal arrangement between that country
and India for relief for avoidance of double taxation. In case of Pakistan
I.
there being a reciprocal agreement the relief has to be granted only
G
• under it.

Article IV of the Agreement provides : ···-
"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 sour- B
ces or categories of transactions specified in column 1 of the
Schedule to this Agreement (hereinafter referred to as the
640 SUPREME COURT REPORTS [1980] l S.C.R.

A. Schedule) in excess of the amount calculated according to
the percentage specified in column 2 and 3 thereof, that
Dominion shall allow an abatement equal to the lower
amount of tax payable on such excess in their Dominion as
provided for in Article VI."

The method of calculation of the amonnt of abatement of the tax is •1
indicated in the latter part of Article IV read with Article VI and the
Schedule appended to the Agreement. There are four columns in the
Schedule. The heading of column 1 is "Source of income or nature
of transaction from which income is derived" and that of columns 2
and 3 "Percentage of income which each Dominion is entitled to
.c charge under the Agreement." The fourth column is a "remarks"
column only. The Scheme of the Agreement, it would be noticed, is
quite different and distinct from what is provided for in sub-section
(1) of Section 49D.

The interpretation of sub-section ( 1) came up for consideration·
t> of this Court in K. V. Al. M. Ranw.nathan Chettiar v. Commissioner
of Income-Tax, Madras('). In the majority opinion of the Court the
view expressed at page 191 runs as follows:-
" .... what commends to us most is that once it is reco-
gnised that the section we are interpreting does not make the
.E basis of relief the tax paid on the income from the same head
or source, as we have shown that the change in the langu-
age does not, then the relief to which an assessee would be
entitled would be the amount of tax paid on the foreign
income which by its inclusion in the total income once again
bears tax under the Act. The word "such" in the phrase
·F "such doubly taxed income" has reference to the foreign in-
come which is again being subjected to tax by ils inclusion in
the computation of the income under the Act and not the
same income under an identical head of income under the
Act. The income from each head under section 6 is not
under the Act subjected to tax separately, unless the •
legislature has used words to indicate a comparison of simi-
lar incomes but it is the total income which is computed and
assessed as such, in respect of which tax relief is given for
the inclusion of the foreign income on which tax had been
paid according to the law in force in that country. The scheme
H of the Act is that although income is classified under diffe-
rent heads and the income under each head is separately
(1) 88 I. T. R. 169 (S.C.)
C.I.T. v. CAREW & co. (Untwalia, J.) 641

computed in accordance with the provisions dealing with that
particular head of income, the income which is the subject-
matter of tax under the Act is one income which is the total
income. The income tax is only one tax levied on the aggre-
gate of the income classified and chargeable under the diffe-
. rent heads; it is not a collection of distinct taxes levied sepa-
B·
...r _, rately on each head of income. In other words, assessment
to income-tax is one whole and not group of assessments for
different heads or items of income."
J
Learned counsel for the Revenue heavily relied upon his decision to
~ assail the correctness of the High Court judgment under appeal. In
Ramanathan Chettiar's case (supra) the assessee, a resident in India, c
was doing money-lending business in Malaya·as well as in India. For
the assessment year 1953-54 the assessee's income in Malaya was
Rs. 2,22,532/-, the assessee had incurred a business loss in India of
Rs. 68,858/-. In India he hacl income from other sources to the extent
of Rs. 39,142/-. The Income-Tax Officer added the income from other
sources to the foreign income and, deducting from the total thus com-
puted the loss in India of Rs. 68,858/-, he granted double taxation
relief under section 49D of the Income-tax Act, 1922, on the balance
of Rs. 1,92,816/-. The Commissioner in revision took the view that
the entire business loss of Rs. 68,858/- was to be adjusted aga.inst the
assessee's business income in Malaya which was to the tune of
E
Rs. 2,22,532/- and only the balance of this being Rs. 1,53,674/-
could be held to have suffered double taxati9n. High Court affirmed
this view. This Court differed and held that the assessee was entitled
to double toaxation relief in respect of the sum of Rs. 1,92,816/- as
granted by the Income-Tax Officer. It is to be noticed that in section
49D, as it stood prior to amendment in 1953, the expression used was F.
"tbe same income" while after the amendment the wordings of sub-
section (1) were "such doubly taxed income". And that made all the
difference in the interpretation and the total income of the oassessee
determined by computation in India was Rs. 1,92,816/- and the whole
of it, although coming from different sources, was held to have been
• subjecterl to tax in Malaya irrespective of the fact that the income of G;
• the oassessee in that country was only from business .
In the judgment under appeal the High Court has said at page
467 : -
"Thus, for purposes of abatement, income from each
source or category of transactions specified in the Schedule H'
has to be separately considered and doolt with .. If a particular
item of income comes from a source or category which is not
642 SUPREME COURT REPORTS [1980] l S.C.R.

A specified in the Schedule it cannot be the .subject-matter of
the Agre_ement and no abatement in respect thereof can be
allowed. In our view, the agricultural income in Pakis1'an
is one of such excepted sources or categories."

If there were no differences in the phraseology of Section 49D(l) of
B
the Act and Article IV of the Agreement the view expressed by the •I
High Court could have been successfully challenged. But the view
of the High Court on interpretation of Articles IV and VI of the
Agreement is quite correct and I approve of the same. I have already

c
said that the question of giving double taxation relief in case of agri-
cultural income in Pakistan could only be dealt with under sub-
.
section ( 3) of Section 49D of the Act and not under the Agreement. It
is .significant to note that in Article IV the wordings are "where either
Dominion under the operation of its laws charges any income from
the sources or categories of transactions specified in column 1 of the
Schedule to this Agreement". (Emphasis supplied). It would be I
D seen further that the various it'ems in the Schedule clearly indicate that
if the sources cir categories of transactions l!fe to be clubbed together
and not! treated separately then it will be difficult, almost impossible,
to give effect to the Agreement with reference to the Schedule. To
illU.Strate my view point I may take clause (g) of item 7 providing
that in the case of Metal ores, minerals etc. extracted in one Dominion
E and sold in the other without any fnrther manufacturing process and
;without selling establishment or .a regular agency 75 per cent of the
profits is to be charged by the Dominion in which minerals are ex-
tracted and 25 % by the Dominion in which goods are sold. Although
in the Dominion in which the goods are sold it would be the assessee's
income from business, under the Agreement the profit chargeable to
F
tax in a particular Dominion has to fit in by a separate calculation
under item 7 (g).

On a careful consideration of the matter, I have come to the
conclusion that the assessee was entitled to the relief against double
G taxation in accordance with the Agreement leaving out of considera-
tion the figure of loss of Rs. 3,20,839/- incurred in its agricultural
•
activities in Pakistan albeit the said loss had to be taken into account
and adjusted against the assessee's profit in India. The appeal, there-
fore, fails and is dismissed with costs.

B PATHAK, J. I have had the benefit of perusing the Judgment pro-
posed by my learned brother. I would like to say a few words on the
question before us.
C.I.T. v. CAREW & CO. (Pathak, J.) 643

The question is whether for the purpose of abatement of tax under A
the Agreement for the Avoidance of Double Taxation between the
Government of India and the Govermnent of Pakistan the respondent
is entitled, in an assessment made in India under the Indian Income
Tax Act, to set off the agricultural loss suffered by it in Pakistan
against its business income earned in that country.
B
Towards the end of 1947, the Government of India entered into
an Agreement for the Avoidance of Double Taxation with the Govern-
ment of Pakistan. Article I of the Agreement explicitly declares that
the taxes which are the subject of the Agreement are "the taxes im-
posed in the Dominions of India and Pakistan by the Indian Income
Tax Act, 1922 (XI of 1922), the Excess Profits Tax Act, 1940 (XV c
of 1940) and the Business Profits Tax Act, 1947 (XXI of 1947) as
adapted in their respective Dominions". The agreement relates to the
taxes imposed by only those three statutes, operating according to
their respective adapted provisions in India and Pakistan separately.
The tax imposed by any other enactment has not been included within
D
the purview of the Agreement. Therefore, Article IV of the Agree-
ment, under which the respondent claims benefit, must be construed
as relating to assessments made in the two countries under the Indian
Income Tax Act, the Excess Profits Tax Act and the Business Profits
Tax Act only. For the purpose of abatement under Article IV of the
Agreemen~, the primary condition is that tax under those enactments E
should be leviable in both countries on income from the sources or
categories or transactions specified in the Schedule to the Agreement.
In the present case, which relates to 'ID assessment in India under the
Indian Income Tax Act for the assessment year 1956-57, it is not dis-
puted that in respect of that assessment year agricultural income aris-
ing in Pakistan was not liable to tax in Pakistan under the Indian F
Income Tax Act as applied in that country. Consequently, any agri-
cultural income arising or accruing in Pakistan cannot be considered
for the purpose of abatement under the Agreement for the Avoidance
of Double Taxation.
For a period of time, there was no provision of law which gave
• to an assessee, resident in India, relief against double taxation if he
G

• was assessed to tax in Pakistan on his agricultural income accruing or
arising there. In India that income would be liable to tax under the
Indian Income Tax Act, which did not exempt, under s. 4(3)(viii) read
with s. 2(1), agricultural income from land situated outside India. In
Pakistan it would be liable to tax under a law other than the Indian H
Income Tax Act as applied there. The Agreement for the Avoidance
of Double Taxation did not provide for such relief. It was apparently

"'I
•I

"
644 SUPREME COURT REPORTS [1980] 1 S.C.R,

A for that reason that Parliament made provision in India by enacting
s. 49D(3) in the Indian Income Tax Act for granting relief with effect
from April 1, 1956 against double taxation in respect of agricultural
income accruing or arising in Pakistan and taxed in that country.
In my opinion, since agricultural income does not fall within the
B scope of the Agreement for the Avoidance of Double Taxation the
loss suffered by the respondent in agricultural operations in Pakistan
cannot be set off against the business income arising or accruing in
that country for the purpose of determining the abatement due to the
respondent under the aforesaid Agreement. In the absence of such
set off the respondent is entitled to a rebate in respect of the entire
c business i.ncome from Pakistan.
I
Before parting with this case, it is appropriate to point out that a
distinction exists between the avoidance of double taxation and relief
against double taxation. That distinctiou is evidenced by the two
clauses of section 49A of the Indian Income Tax Act. One important \. >I.
D feature distinguishing the two concepts lies in this that in the case of
avoidance of double taxation the assessee does not have to pay the tax
first and then apply for relief in the form of refund, as he would be
obliged to do under a provision for relief against double taxation. The
respective schemes embodying the two concepts differ in some dei,>ree
from each other, and that needs to be borne in mind when statutory
E provisions are referred to and cases are cited before the· court on a I>·
point im:olving double taxation.
The High Court is right in the view taken by it, and, in the result,
the appeal must be dismissed with costs.

S.R. A.ppeal dismissed.

' ..