Sabyasachi Mukharji, J.
1. This reference arises out of the assessment years 1957-58, 1958-59 and 1959-60. The following question has been referred to this court under Section 66(1) of the Indian Income-tax Act, 1922 :
' Whether, on the facts and in the circumstances of the case and on a proper construction of Section 49A and Explanation (ii) to Section 49D ofthe Indian Income-tax Act, 1922, the Tribunal was right in holding that the Income-tax Officer was not justified in deducting the amount of abatement allowable under the Agreement for Avoidance of Double Taxation with Pakistan from the amount of the Indian income-tax for the purpose of determination of the Indian rate of tax mentioned in Clause (b) of Section 49D(3) of the said Act '
2. The assessee is a tea company. It, in the relevant years, had tea gardens in what was then known as East Pakistan, in respect of which agricultural income-tax was payable in Pakistan, The assessee's head office had been, however, located in Calcutta and as such the business was controlled and maintained wholly from the taxable territories under the Indian Income-tax Act, 1922. Consequently its income as arising from manufacture and sale of tea had to be assessed under the Indian Income-tax Act, 1922, and in the assessments for the tax years 1957-58, 1958-59 and 1959-60 it was treated as a resident company. The assessee was, therefore, entitled to deduction from the Indian income-tax payable by it in respect of the above assessment years certain sums to be calculated in accordance with the provisions of Section 49D(3) of the Indian Income-tax Act, 1922, the material portion of which at the relevant time provided as follows;
'49D. (3) 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, tax payable to the Government under any law for the time being in force in that 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
(b) of a sum calculated on that income at the Indian rate of tax;whichever is less.'
3. In this case there is no dispute as regards the quantum of the agricultural income of each year which had been subjected to taxation in Pakistan and there is no dispute that relief in the present case had to be calculated in terms of Clause (b) of the above sub-section which spoke of deduction of a sum calculated on the agricultural income arising in Pakistan at the 'Indian rate of tax'. The expression 'Indian rate of tax' was defined in Explanation (ii) which follows Sub-section (4) to Section 49D and provided at the relevant time as follows :
' .... the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the other provisions of this Actbut before deduction of any relief due under this section, by the total income.'
4. For each of the assessment years, which are the subject-matter of this reference, the Income-tax Officer passed orders separately under Section 49D(3) with the intention of granting relief to the assessee-company under the said section but in calculating the 'Indian rate of tax' for each of the assessment years concerned the Income-tax Officer had deducted the amount which the company was entitled as abatement of tax in terms of the Agreement for the Avoidance of Double Taxation which the Government of India had entered into with the Government of Pakistan in exercise of the powers conferred by Section 49AA of the Indian Income-tax Act, 1922, which was subsequently replaced by the amended Section 49A as introduced by Section 3 of the Finance Act, 1953. This was done by the Income-tax Officer in spite of the contention of the assesses that abatement granted under the agreement would not be considered as 'relief due under the other provisions of the Act' within the meaning of Explanation (ii) to Section 49D. The assessee, thereafter, preferred an appeal before the Appellate Assistant Commissioner, who dismissed the appeal by his consolidated order dated 2nd July, 1963, The Appellate Assistant Commissioner agreed with the Income-tax Officer that Section 49A of the Act authorised the relief to which the company was entitled under the Agreement for the Avoidance of Double Taxation and such relief should be considered to be the relief under Section 49A of the Act and, therefore, was a relief under ' the other provisions of the Act'.
5. The assessee, thereafter, preferred an appeal before the Income-tax Appellate Tribunal which following its consolidated order dated 9th November, 1965, in respect of this case relating to the assessment years 1951-52, 1955-56 and 1956-57 held that in computing the ' Indian rate of tax' within the meaning of Explanation (ii) to Section 49D(3), the abatement granted under the agreement with Pakistan should not be deducted from the income asssesed in India. The Tribunal, therefore, allowed the appeal for all these years. For the assessment years, which are the subject-matter of the present reference, the assessee did not raise any grounds challenging the Income-tax Officer's jurisdiction in the matter of passing the orders under Section 49D(3) unlike the orders of the Income-tax Officer for the earlier years referred to above which, had been passed under Section 154 of the Act by way of rectification of the original assessment orders for those years. Therefore, the only common ground that was urged before the Tribunal for the relevant assessment years now under consideration was on the merits of the question as to whether abatement to which the company was entitled under the agreement could be considered as relief under the provisions of the Indian Income-tax Act, 1922. It wascontended on behalf of the assessee before the Tribunal that there was a clear distinction between 'relief' and ' abatement' of tax which was allowed in pursuance of the agreement with Pakistan and this distinction, it was submitted, had been maintained in clauses (a) and (b) of Section 49A of the Act. It was urged that under the new Income-tax Act, 1961, Explanation (ii) to Section 91(2), which corresponds to Section 49D(3) of the old Act, expressly prohibited deduction of the amount of abatement allowable for calculating ' Indian rate of tax ' at which relief was to be given under Section 49D(3). The Tribunal accepted the assessee's argument and observed that relief referred to in Clause (a) of Section 49A was granted when tax had been paid in both the countries while the benefit conferred by Clause (b) arose before the tax had been imposed and paid. The Tribunal, therefore, held that abatement of tax under the agreement with Pakistan did not amount to ' relief due under the provisions of the Act' within the meaning of Explanation (ii) to Section 49D(3). In the premises the assessee's appeal was, therefore, allowed on this point. Thereafter, the question mentioned hereinbefore has been referred to this court.
6. The question, as mentioned hereinbefore, is whether for calculating the Indian rate of tax in terms of Explanation (ii) to Section 49D(3) amount of abatement as provided under Clause (b) of Section 49D(3) of the said Act was to be deducted. In this connection we may first refer to Section 49A which was substituted by the Finance Act, 1953, in place of the original Section 49A and Section 49AA. Clause (a) of the present Section 49A, it is necessary to mention, corresponded to Section 49A before the amendment by the Finance Act, 1953. Clause (b) of the present Section 49A corresponded to Section 49AA before the amendment by the Finance Act, 1953. Section 49A provided as follows :
'49A. Agreement for granting relief in respect of double taxation or for avoidance thereof.--The Central Government may enter into an agreement-
(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 under this Act and income-tax in that country, or
(b) with the Government of any country outside India for the avoidance of double taxation of income, profits and gains under this Act and under the corresponding law in force in that country;
and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. '
7. It is to be mentioned that at that time the said clauses were contained in a chapter dealing with refund, which was Chapter VII. The heading of the clause, as would be apparent, postulated that it was dealing with two kinds of subjects, viz., it was dealing with the agreement for granting relief in respect of double taxation and also with the agreement for avoidance ofdouble taxation. The legislature has used the disjunctive expression 'or' after the words 'in respect of double taxation or for avoidance thereof', By this section the legislature had authorised the Central Government to enter into an agreement with the country outside India for either of these two contingencies, viz., for granting of relief in case of double taxation and also for agreement for avoidance of imposition of double taxation. The provisions of this section came up for consideration by a Division Bench of this court in the case of Shell Co. of India Ltd. v. Commissioner of Income-tax, [1964] 51 I.T.R. 669 (Cal.). There, it was held that if an assessee desired to avoid double taxation under the Agreement for Avoidance of Double Taxation between India and Pakistan, he should take steps to obtain an abatement at the time of the assessment or see that the Income-tax Officer made an estimate of the abatement and kept the same in abeyance. If, however, the assessee had fully paid the tax which had been assessed and had not appealed against the order of assessment, which would become binding, he could not obtain any advantage under the Agreement for Avoidance of Double Taxation. It was observed that there was no machinery for making an application for abatement in such a case or for applying for refund. The court observed that there was material difference between the provisions of Sections 49A and 49AA of the Indian Income-tax Act, 1922. As mentioned hereinbefore/ Section 49A, which the court had an occasion to deal with in the aforesaid decision, corresponded to Clause (a) of Section 49A of the Indian Income-tax Act, 1922, as amended by the Finance Act, 1953, while Section 49AA corresponded to Clause (b) of the instant Act. It was observed by the Division Bench that Section 49A, which the court had occasion to deal with, provided that relief in certain cases where income-tax had already been paid both in India and in a foreign country on the same income which had been charged to tax in both countries. It was stated that Section 49AA, however, did not grant relief against double taxation which had already taken place but it only provided for an agreement for avoidance of double taxation. In the former case the tax had to be paid first and then only arose the right to apply for refund of the excess amount. In the latter case the provision had been made for avoiding double taxation before its imposition. One of the questions referred to this court was, inter alia, whether in respect of refund not granted for the tax which had been paid in breach of the Agreement for Avoidance of Double Taxation, the assessee had any right of appeal under Sections 30 and 33 of the Indian Income-tax Act, 1922, against the refusal of the Income-tax Officer to grant an abatement under the Agreement. Dealing with the scheme of the Agreement and the relevant section the court observed, at page 679, of the decision as follows:
'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. '
8. The scheme of the section as also the Agreement for Avoidance of Double Taxation in Pakistan, which is the subject-matter of the decision in this case, was also considered by the Supreme Court in the case of Ramesh R. Saraiya v. Commissioner of Income-tax, : [1965]55ITR699(SC) . In view of the fact that the controversy in that case was different, it is not necessary to refer in detail to the said decision.
9. Counsel for the revenue contended before us that abatement was some kind of relief and Explanation (ii) to Section 49D(4) had used the expression 'after deduction of any relief due under the provisions of the Act', and the legislature had used the expression 'relief' in loose commonsense point of view and had intended to cover relief granted to an assessee for all kinds of remission of taxation. In the premises it was urged that abatement allowed in pursuance of the Agreement of Double Taxation was a relief contemplated under Clause (b) of Explanation (ii) to Sub-section (4) of Section 49D. Emphasis was laid on the expression 'any relief '. It was argued that the legislature had not used the expression 'the relief'. It was next contended that the abatement allowed under the Agreement for the Avoidance of Double Taxation is a relief under the provisions of the Act. It was submitted that the Act provided for entering into an agreement for avoidance of double taxation and abatement was a kind of a relief or benefit granted to an assessee under the agreement which was permitted by the provisions of the Act, viz., Clause (b) of Section 49A. Therefore, any benefit arising or accruing to an assessee by virtue of that agreement could be said to arise by virtue of the provisions of the Act, Therefore, it was submitted that relief was granted to the assessee under the provisions of the Act.
10. In support of the contention that the benefit the assessee is entitled to under the Agreement for the Avoidance of Double Taxation which was permitted by the provisions of the Act is a relief due under the provisions of the Act, counsel for the revenue relied on the decision in the case of Thompson & Sons v. North Eastern Marine Engineering Company Ltd., [1903] 1 K.B. 428 (K.B.)
11. It would be appropriate to deal with the second contention by the revenue in support of this argument. It has to be acted that in order to be entitled to deduction it should be ' a relief due under the provisions of the Act'. Therefore, it must be: (i) a relief, (ii) that relief must be due, and (iii) any such right to get a relief under the other provisions of the Act (sic). The question, therefore, is whether any benefit which is permitted to an assessee by virtue of an agreement by which action is permitted by the statute can be said to be a benefit due under the Act. It has to be mentioned that the Act does not deal with the question of relief or benefit by way of deduction or abatement in case of double taxation. The Act merely authorises the Central Government to enter into certain kinds of agreement but the authority of the Central Government is of a two-fold nature. The Central Government is authorised by Section 49A to enter into an agreement for relief in respect of double taxation. Secondly, the Central Government is also authorised to enter into an agreement for avoidance of double taxation. These two are different authorities; if abatement in respect of double taxation would have, covered the agreement of the authority to give a relief, then it would not have been necessary to provide by two different sub-clauses two different authorities to the Central Government. This distinction has been clearly brought about as mentioned hereinbefore in the decision of this court in the case of Shell Co. of India Ltd. v. Commissioner of Income-tax, where the aim and purpose of Section 49A which corresponds to Clause (a) of Section 49 A and Section 49 AA which corresponds to Clause (b) of the present Section 49A had been mentioned. In cases of an agreement for avoidance of double taxation it is not a question of relief in respect of taxation. It is for the method or machinery for avoiding that the double taxation takes place. Furthermore, in view of the clear pronouncement of the Division Bench of this court that the machinery by which the assessment is made and application for refund entertained in normal case is provided by the Act and that the agreement for avoidance of double taxation was no part of the Act itself, it is not possible to accept the position that any provisions of the Act provided for the relief to the assessee which is covered by the abatement under the agreement for avoidance of double taxation. As mentioned hereinbefore, reliance was placed on the decision in the case of Thompson & Sons v. North Eastern MarineEngineering Company Ltd. There Section 6 of the Workmen's Compensation Act, 1397, provides as follows:
'Where the injury for which compensation is payable under this Act was caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect thereof, the workman may, at his option, proceed, either at law against that person to recover damage., or against his employer for compensation under this Act, but not against both, and if compensation be paid under this Act. the employer shall be entitled to be indemnified by the said other person. '
12. It appears that the plaintiffs were shipbuilders at Sunderland and on December 5, 1901, were engaged in repairing the steamship, Lindisfarne, in the River Wear Dock. The defendants who are builders of marine engines were engaged at the same time 'and place in repairing the boilers of the steamship. One of the defendant's servants allowed a bag of coke to fall into the hold of the vessel where it struck and injured Archbold who was a workman employed by the plaintiffs. The workman gave notice of the accident to the plaintiffs and on the 23rd December he claimed compensation from the plaintiffs in respect thereof. Thereafter, on the 28th December, the plaintiffs agreed verbally with Archbold to pay him a sum of 19s. 2d. per week as compensation under the Workmen's Compensation Act and a memorandum of this agreement was duly sent to the Registrar of the County Court and recorded by him in accordance with the eighth provision of the 2nd Schedule to the Act. The plaintiffs had continued to pay the said workman Archbold the stipulated sum of 19s. 2d. a week under the agreement and had taken receipts from him as for compensation paid under the Act. They in that action sought to be indemnified by the defendants under Section 6 of the Act which has been mentioned hereinbefore. It has to be noted that Section 6 provided that compensation had to be payable under the Act and this section further provides that compensation should be payable under the Act, if there were circumstances creating a legal liability. Now, in that case, obviously the agreement between the plaintiffs and Archbold to pay the sum of 19s. 2d. created a legal liability with the plaintiffs. The defendants had contended that there was no proceeding in respect of Section 6. Overruling the contention it was held that Section 6 applied where compensation was paid under the agreement made between the injured workman and the employer after notice of the accident and of the claim for compensation had been given by the workman to the employer but before any further proceeding had been taken. The court observed that the decisive words were ' compensation be paid under the Act'. It was further observed that if such payment had beenmade under the agreement within these words, then it should be held that it must be paid under the Act. At page 438, the court observed:
'Further, as it seems to me, the party who indemnifies for compensation paid under an agreement between employer and workman is, in this respect, no worse off than one who indemnifies in respect of compensation paid under an award. Be that as it may, I cannot, merely because of these suggested difficulties, construe the section in any other way than according to the natural meaning of the words of the section ; and I feel bound to hold that an agreement to pay compensation being one of the methods contemplated by the Act, payment under such an agreement is payment of compensation under the Act, and the plaintiffs' right to indemnity from the defendants follows. Further, as I have said, if it were necessary to decide the point, I should be prepared to hold that there had been here a 'proceeding' against the plaintiffs under the first half of Section 6. I, therefore, give judgment for the plaintiffs.'
13. Firstly, it has to be noted that the section there spoke of compensation 'payable under the Act'. In this case it is relief due not under the Act merely, but 'under the other-provisions of the Act'. Secondly, in that case Section 6 applied whenever there was a legal liability in some person other than the employer to pay damages. An agreement between the employer and the workman concerned does certainly create a legal liability. Section 6 authorises an action whenever there was a legal liability in the contingency contemplated. In the instant case the Act, as mentioned hereinbefore, did not stipulate for any relief. It only authorises the Central Government for making any agreement for avoidance of double taxation. Therefore, in view of the aforesaid matter and clear pronouncement by the Division Bench of this court in the case of Shell Co. of India Ltd. v. Commissioner of Income-tax, it must be held that relief is not due under ' the other provisions of the Act'.
14. The other aspect of the matter is whether the expression ' relief ' should be construed in terms of relief against double taxation as contemplated under Clause (a) of Section 49A or should be construed in a broad liberal sense to include all kinds of benefits given to a taxpayer. Where there has been no imposition of tax, there could not be question of granting any relief and that ' imposition of tax ' contemplates cases where taxes have already been paid or imposed while Clause (b) of Section 49A envisages a situation where tax had not been imposed. It is true that relief is a word which is capable of being construed also in a broad liberal sense but in this connection it has to be borne in mind that the legislature in Section 49A has maintained this distinction between an agreement for relief against double taxation and an agreement for avoidance of double taxation.Secondly, as mentioned hereinbefore, as construed by the Division Bench, Section 49A at that time and Clause (a) of the present Section 49A deal with the relief while Section 49AA or Clause (b) of the present Section 49A deals only with avoidance of double taxation not in respect of relief of taxation. Further, it has to be borne in mind that, in construing the Indian rate of tax as the question of deduction for the purpose of granting certain relief to the assessee arises, it should be construed strictly and if there be any doubt as to the sense in which the expression 'relief' had been used in that section, it should be construed in favour of the taxpayer and not in favour of the revenue. In view of the nature of the language used, and in view of the provisions made and in view of the authority under which these agreements were made, we are of the opinion that the Tribunal was right in holding that the Income-tax Officer was not justified in deducting the amount of abatement allowable under the Agreement for Avoidance of Double Taxation in Pakistan from the amount of Indian income-tax for the purpose of determining the Indian rate of tax mentioned in Clause (b) of Section 49D(3) of the Act.
15. In the premises, this question is answered in the affirmative and in favour of the assessee.
16. There will be no order as to costs.
Hazra, J.
17. I agree.