Sankar Prasad Mitra, J. - (1.) This is a reference under Section 256(1) of the Income-tax Act, 1961. The assessee-respondent is a tea company. It has its gardens in East Pakistan in respect whereof agricultural income-tax is payable in Pakistan. Its head office is, however, located in Calcutta, Naturally, its business is controlled and managed wholly from the taxable territories as defined in the Indian Income-tax Act. The result is that its income arising from manufacture and sale of tea was assessed under the Indian Income-tax Act, 1922. In the assessment for the tax years 1951-52, 1955-56 and 1956-57 the assessee has been treated as resident company. As such, the assessee was entitled to deduction from the India'n income-tax payable by it in respect of the said assessment years certain sums to be calculated in accordance with the provisions of Section 49D(3) of the Indian Income-tax Act, 1922. This sub-section reads thus : "If any person who is a resident in the taxable territories in any year proves that in respect of his income which accrues of 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 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."
(2.) In the present case there is no dispute regarding the quantum of agricultural income of each year which had been subjected to tax in Pakistan. It is also common ground that relief is to be calculated in terms of Clause (b) of the above sub-section with speaks 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" has been defined in Explanation (ii) which follows Sub-section (4) to Section 49D and means: " ......the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the other provisions of this Act but before deduction of any relief due under this section, by the total income.: "
(3.) In the original assessments made on the respondent-company for the assessment years referred to above relief under Section 49D(3) had been granted by the Income-tax Officer concerned making such assessments without reducing the gross tax payable by the company by such relief or abatement of tax to which it was entitled under the Agreement for the Avoidance of Double Taxation (hereinafter referred to as " A.A.D.T.") between the Government of India and Pakistan dated December 10, 1947. It struck the Income-tax Officer at a later stage that the Indian rate of tax on the basis of which relief under Section 49D(3) had already been granted for those years was in excess of what the company was entitled to. By his orders dated December 18, 1962, purported to have been passed under Section 154 of the Income-tax Act, 1961, the Income-tax Officer revised the original assessment orders with a view to recover the excess relief which, in his opinion, had already been granted to the company as a result of the original assessment orders. He rejected the respondent's contention that such revision did not strictly fall within the ambit of either Section 35 of the Indian Income-tax Act, 1922, which has been referred to in the body of the Income-tax Officer's orders or under the corresponding Section 154 of the Income-tax Act, 1961. The Income-tax Officer further held that the abatement to which the respondent-company was entitled under the A.A.D.T. was nothing but " relief due under the other provisions of the Act", and, as such, had got to be deducted from the gross tax in calculating the Indian rate of tax within the Explanation to Section 49D(3).;