Sikri, J.
1. This appeal by special leave is directed against the judgment of the HighCourt of Punjab at Chandigarh in a reference made to it under s. 66(1) of theIncome Tax Act, 1922, hereinafter referred to as the Act. The questions whichwere referred were :
(1) Whether the assessee wasentitled to have an adjustment of the advance tax paid by it under Section 18-Aof the Indian Income-tax Act in Lahore for the assessment year 1947-48 againstthe demand of tax raised by the Income-tax Officer 3rd Additional BusinessCircle, New Delhi for the assessment year 1947-48
(2) Whether the order of theTribunal directing a refund to the assessee out of the advance tax paid by himin Lahore is legal and valid
2. As the High Court rightly observed, the answer to the second questiondepends on the answer to the first question, and it is the first question alonewhich requires consideration.
3. The relevant facts are stated in paras 2 and 3 of the statement of theCase, as follows :
'2. The statement of caserelates to the assessment year 1947-48, the accounting period being thecalendar year ending 31st December, 1946.
3. The assessee is a publiclimited company dealing in the manufacture and sale of stationery goods.
Before the partition of the Country the company's registered office as wellas the head office was at Lahore. The assessment for the year 1947-48 wascompleted by the Pakistan Income-tax Officer on the 28th January, 1948completely ignoring the agreement for the Avoidance of Double Taxation ofIncome between the Pakistan and the Indian Governments. The assessment for theyear 1947-48 was also made by the Income-tax Officer 3rd Additional BusinessCircle, New Delhi on a figure of Rs. 38,916. It is common ground that theassessee had paid advance tax under Section 18-A of the Indian Income Tax Actto the tune of Rs. 36,783/6/- between June, 1946 and March, 1947. This tax waspaid under the Indian Income-tax Act to the Income-tax Officer, Lahore.'
4. The Income-tax Officer III, Additional Business Circle, New Delhi, by hisorder, dated March, 1952, determined the total income of the respondent, M/s.Bharat Carbon & Ribon Manufacturing Co., hereinafter referred to as theassessee, 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 theassessee was that credit should be given to him for the advance tax paid by himin Lahore, under s. 18A(11) which reads as follows :
'Any sum other than a penalty or interest paid byor recovered from an assessee in pursuance of the provisions of this sectionshall be treated as a payment of tax in respect of the income of the periodwhich would be the previous year for an assessment for the financial year nextfollowing the year in which it was payable, and credit therefor shall be givento the assessee in the regular assessment.'
5. The Appellate Assistant Commissioner disallowed the claim. He observed :
'I, however, find that the amount under Section18-A was paid by the assessee to the Income-tax Officer, Lahore. The sameIncome-tax Officer made an assessment for this very year on 28th January, 1948on a total income of Rs. 1,22,014 for income tax and Rs. 52,780 for capitalgains. He worked out the total tax payable by the assessee at Rs. 76,472/6. Asa result of this assessment, even after setting off the tax paid under Section18-A of Rs. 47,513 an amount of Rs. 20,000 was still due from this assessee.The amount under Section 18-A has, therefore, been adjusted by the Pakistanauthorities towards the payment of tax and the assessee cannot take credit forthis amount again. Under these circumstances, it must be held that there was nobalance of tax paid under Section 18-A left to be adjusted by the Income-taxOfficer for the Indian assessment.'
6. The assessee filed an appeal before the Appellate Tribunal. The Tribunalallowed the claim on the ground that the language of s. 18A(11) was mandatory,and it was the duty of the Income-tax authorities to give credit for the amountpaid by the assessee as advance tax in the regular assessment made under theIndian Income Tax Act. It observed :
'What the income tax authorities would do or mayhave done to the advance tax paid to the Income-tax Officer, Lahore, isentirely immaterial.'
7. At the instance of the Commissioner of Income Tax a reference was made ofthe 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 atthe time of regular assessment. In reply to the argument of the learned counselfor the Commissioner of Income Tax that no adjustment was possible because thePakistan authorities had already raised a demand against the assessee onJanuary 28, 1948, and in part satisfaction of that demand wiped out the amountstanding to the credit of the assessee, the High Court observed :
'It is, however, obvious that what may have beendone by the Pakistan authorities in January, 1948, cannot be called aproceeding under the Indian Income Tax Act and the fact that the money paid bythe assessee under the Indian Income Tax Act may have been seized by thePakistan authorities or disposed of in some other manner, can in no way affectthe right of the assessee under the Indian Income-tax Act.'
8. In the result, the High Court answered both the questions in theaffirmative.
9. 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 IndianIndependence Act, applied both to the Dominion of Pakistan and Dominion ofIndia, and the result of this simultaneous application to both the Dominionswas that the advance tax paid by the assessee was liable to be adjusted againstthe assessments made both in Pakistan and in India, and Pakistan having madethe adjustment, there was no money left to be adjusted against the assessmentin India.
10. The learned counsel for the respondent relies on the reasoning of theHigh Court and on Dwarka Dass v. Income-tax Officer, Kanpur : [1956]29ITR60(All) andsays it was the obligation of the Government of India under s. 9 of the IndianIndependence (Rights, Property and Liabilities) Order, 1947, either to refundthe money paid as advance tax or to give credit in the assessment in India.
11. 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 existing immediatelybefore the appointed day shall, so far as applicable and with the necessaryadaptations, continue as the law of each of the new Dominions and the severalparts thereof until other provision is made by laws of the Legislature of theDominion in question or by any other Legislature or other authority havingpower in that behalf.'
12. In our opinion the effect of s. 18(3) of the Indian Independence Act wasto change the incidents of the advance tax paid. Previously the advance tax wasto be adjusted towards a single regular assessment to be made by British India.After the Indian Independence Act the advance tax was liable to be adjustedagainst two regular assessments, one by India and one by Pakistan. In Pakistan,under s. 18A(11), the Pakistan Government was entitled to adjust the advancetax paid by the assessee against its demand. Similarly, the Government of Indiawas entitled to adjust the amount against its demand. It follows that if theassessee has been given credit for the advance tax by the Pakistan Government,he cannot claim that credit should be given to him by the Indian Income Tax authorities.The effect of the Indian Independence Act was not to double the advance moneythe assessee had paid. The amount of money he paid as advance tax remained thesame. Having been given credit by the Pakistan Government he could not claimthat there was any amount left on which s. 18(A)11 could operate. Dwarka Dass'scase : [1956]29ITR60(All) relied on by the learned counsel for the assessee isdistinguishable because that case proceeded on the assumption that no regularassessments had been made in Pakistan for the relevant years and only someassessment proceedings were pending. It was also common ground that excesspayments had been made by the petitioner in that case under s. 18A of theIndian Income Tax Act in Lahore in respect of the years 1946-47 and 1947-48,and it was only these excess payments that the Allahabad High Court haddirected should be set off against the assessments of the subsequent years. Butthe facts in the present case are different. Here the Pakistan authorities hadmade a regular assessment and had adjusted the advance tax paid by theassessee.
13. In this view it is not necessary to consider the interpretation of s. 9of the Indian Independence (Rights, Property and Liabilities) Order, 1947. Byvirtue of the simultaneous application of the Indian Income Tax Act in both theDominions, there was a statutory modification of the incidents of the advancetax paid by the assessee.
14. In the result we hold that the answer to the questions should be in thenegative and against the assessee. The judgment of the High Court isaccordingly set aside and the appeal accepted with costs here and in the HighCourt.
15. Appeal allowed.