TRUSTEES OF H.E.H. THE NIZAM'S PILGRIMAGE MONEY TRUST VS COMMISSIONER OF INCOME-TAX, 2001 PTD-SUPREME-COURT-INDIA 3380 (1997)

(Appeal from the judgment and order, dated March 10, 1978 of the Calcutta High Court in I. T. R. No. 102 of 1971).

Income‑tax‑‑‑

‑‑‑‑Double taxation avoidance‑‑‑Money‑lending transaction in India‑‑ Amount utilised in Pakistan‑‑‑Interest on money borrowed‑‑‑Benefit of Cl. 5(t) of Art. IV of Avoidance of Double Taxation Agreement available‑‑ Agreement for Avoidance of Double Taxation between India and Pakistan, Art.IV, Cls.5(f) & 9.

The assessee, which was the managing agent of two sugar mills in East Pakistan, lent money to the managed companies which were brought from Calcutta to East Pakistan. The Tribunal held that the interest derived by the assessee from the moneys lent on interest and brought into Pakistan fell within the ambit of clause 5(f) of the Schedule to Article IV of the Agreement for the Avoidance of Double Taxation between India and Pakistan and the assessee was entitled to the benefit of that clause. The High Court, on a reference, upheld the decision of the Tribunal [see (1981) 130 ITR 917]. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, that clause 9 of the Agreement was not attracted to this case clause 5(f) covered the matter.

CIT v. Soorajmull Nagarmull (1981) 130 ITR 917 affirmed.

R.R. Mishra, Senior Advocate (B.Krishna Prasad, Advocate with him) for Appellant.

J. Ramamurthy, Senior Advocate: Amicus curiae for Respondent.

ORDER

This appeal, by certificate granted by the Calcutta High Court under t section 66A(2) of the Indian Income‑tax Act, 1922, arises out of reference made by the Income‑tax Appellate Tribunal (hereinafter referred to as "the Tribunal") wherein the following question was referred for the opinion of the High Court (page 919):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs.l lakh was income derived from money lent at interest and brought into Pakistan in cash or in kind within the meaning of item No.5(f) to the Schedule to the Agreement for Avoidance of Double Taxation between India and Pakistan?"

The High Court has answered the said question against the Revenue and in favour of the assessee. It relates to the assessment year 1949‑50.

The facts, briefly stated, are that the assessee was the managing agent of two sugar mills situated in East Pakistan. The assessee had lent moneys to the managed companies in East Pakistan which was brought from Calcutta to East Pakistan for the business of the managed companies of the assessee. The Appellate Assistant Commissioner found that the interest that was due to the assessee on funds advanced to the managed companies in Pakistan would be Rs.1,00,000 and held that Rs.1,00,000 was the income derived by the assessee from moneys lent on interest and brought into Pakistan in cash or in kind. The Tribunal agreed with the Appellate Assistant Commissioner and upheld the claim of the assessee that the matter fell within the ambit of clause 5(f) of the Schedule to Article IV of India and Pakistan Avoidance of Double Taxation Agreement and it did not accept the claim of the Revenue that it fell under clause 9 of the said Schedule. Clauses 5(t) and 9 of the said Schedule to the said agreement (page 920):

"Sources of income or nature ofPercentage of income which Remarks

transaction from which incomeeach Dominion is entitled to

is derivedcharge under the Agreement

5(f). Income derived from any 100 per cent. by the Domi‑ Nil by

money lent at interest and brought nion into which the money the other

into a Dominion in cash or in kind. is brought.

9. Any income derived from a100 per cent. by thq‑Domi‑Nil by

source or category of transactionsnion in which the incomethe

not mentioned in any of the fore‑actually accrues or arises.other"

going item of this Schedule.

'The High. Court after considering the said clauses has observed as under (page 921):

"In clause 5(f) of the Agreement, Pakistan is entitled to the charge of 100 .per cent. of the income. The money had been brought to Pakistan by the managed companies and the assessee derived income from money lent on interest and brought into that Dominion. Pakistan in that case would be entitled to claim 100 per cent. of the income. Clause 9 of the agreement is a residuary clause. The assessee could be brought under this clause had there been no intention of application of the money borrowed for the management or development of the companies situated in Pakistan.

Thus, from the facts and circumstances of the case, it appears to us that the transaction of moneys, though they had been made in Calcutta, was for a specific purpose, namely, to be diverted to Pakistan for the management of development of their companies situated in East Pakistan and thus, entitling the assessee to take the benefit of clause 5(f) of Article IV of the Indo‑Pakistan Agreement."

We have heard Shri R.R. Mishra, learned senior counsel for the Revenue, and Shri, J. Rama Murthy, learned senior counsel, who was requested to assist the Court on behalf of the respondent as amicus curiae. In our opinion, the High Court has rightly held that clause 9 was not attracted in this case and clause 5(f) would cover the present matter. We, therefore, do not find any infirmity in the impugned judgment of the High Court. The appeal is accordingly dismissed. No order as to costs.

We record our appreciation for the assistance rendered by Shri Rama Murthy in this matter.

M.B.A./1051/FCAppeal dismissed.