1. SAEEDUZZAMAN SIDDIQUI, J.--This Income-tax 12efcrence and section 66(2) of the Income-tax Act has been filed by the applicant directly in this Court with the following questions for our decision-- "1.s Whether on the facts and in the circumstances of the case the Tribunal was justified in upholding the orders of the Income-tax Authorities taxing the profit of East Pakistan Branches of the assessee amounting to Rs. 45,90,941 which had not been repatriated to its Head Office at Karachi.
2. Whether or the facts and in the circumstances of the case the Tribunal was justified in upholding the orders of the Income-tax Authorities charging to tax the amount of Rs. 20.74,214 being the interest accrued on by back shares, which was not received by the Head Office of the assessee at Karachi."
2. The petitioner, which is a Banking Company, filed its return of Income-- tax for the assessment year 1972-73 (period ending 31st December, 1971) in which they declared their total world income at Rs 1,71.92,177. This return was filed by the petitioner on 31st August, 1972. Later on, the applicant/ assessee was permitted to file a revised return on 20th February, 1973, in which they claimed losses in profit amounting to Rs.45,90,941. The assessee also claimed in its revised return adjustment of a sum of Rs. 20,74,241 by way of accrued interest on buy back of the shares, which became un- receivable. The Income-tax Officer did not agree with the contentions of the petitioner and held that as the accounts were maintained by the assessee under the Mercantile System of Accounting and as such the amounts shown as accrued to the applicant in the accounts books were liable to assessm ent under sections 3 and 4 of the Income-tax Act. It was found by the Income-tax Officer that although the amount which is claimed by the assessee having not been received in the Head Office in West Pakistan may be true on account of setting up of Bangladesh Government in the erstwhile territory of East Pakistan but this was not relevant for the purposes of framing assessm ent. The view taken by the Income-tax Officer has been upheld by the Assistant Appellate Commissioner as well as Income-tax Appellate Tribunal. After the decision of the case by the Income-tax Appellate Tribunal the applicant approached the Income-tax Appellate Tribunal for making a reference in the case to this Court under section 66(1) but it refused to accede to the request of the applicant. The applicant accordingly filed the above reference directly under section 66(2) of Income-tax Act 1922 and has referred the questions for our decision, which are reproduced earlier.
3. Mr. Sirajul Haque, learned counsel for the applicant contended before us that although the amount of Rs.45 lacs and Rs.20,74,240 respectively were shown in the books of account as profit and as interest accrued on the buy back of the shares in East Pakistan but these amounts were neither received nor could they be received by the applicant on 31st December, 1971, when the accounting year ended on account of setting up of Bangladesh Government in the erstwhile territory of East Pakistan. It is accordingly contended by the learned counsel that although the above amounts could be said to have accrued to the applicant on 16th December, 1971 when East Pakistan fell and the Government of Bangladesh emerged, but on 31-12-1971 when the accounting year ended, the receivability of this amount by the applicant became impossible in the circumstances. This point appears to have been vehemently pressed by the applicant both before the Income-tax Officer as well as before the Income-tax Appellate Tribunal but it was disposed of with the observations that the fact that the accrued income was not physically received by the applicant in Pakistan does not make any difference for the purposes of framing of assessment under sections 3 and 4 of the Income-tax Act. The effect of creation of Bangladesh and resultant impossibility of receiving the income from that part of the country by the applicant and its consequent effect on the assessment of income of applicant for that period was neither examined and decided by Income-tax Officer nor by the Appellate Tribunal, although the applicant was allowed to submit a revised return of its income for that period on 20-2-1973. The contention of the applicant consistently, throughout had been that the right to receive income which was shown in the books of account of the applicant ceased to exist on 16th December 1971 when the Government of Bangladesh came into existence and all its assets were taken over by that Government. It was accordingly contended by the assessee before the I.T.O. And Income-tax Tribunal that as the above income was never received by the applicant nor remained receivable by it, the same could not be included in the assessment order under sections 3 and 4 of the Income-tax Act. In our opinion this specific question raised by the applicant should have been decided while framing the assessment order for the year in dispute. It cannot be denied that under section 4 of the Act only such income is assessable to tax which is actually received or which is deemed to have been received by the assessee in Pakistan.
4. There being no categorical finding by the Income-tax Authorities that the A disputed amounts of Rs. 45 lacs and Rs. 20 lacs and odd shown in the revised return of the assessee were in fact received by the applicant, the assessment order suffered from legal infirmity. The learned counsel for the department very frankly stated that these questions may now be decided by the authorities in the light of above observations. We accordingly allow this reference with the observation that the Income-tax Authorities will re-determine the question of inclusion or otherwise of the sum of Rs.
5. 45 lacs and Rs. 20 lacs and odd in the income of the assessee for the period ending on 31-12-1971 in the light of the observation made by us above. The reference is decided accordingly but there will be no order as to costs.