JUDGMENT 1. The following questions of law have been referred to us for opinion:- "(1) Whether on the facts and in the circumstances of this case, the amount of rs. 3,43,138/- received by the assessee was derived from a source or category of transaction mentioned in Item 5 (g) of the schedule to the Agreement for the Avoidance of Double Taxation of Income between India and Pakistan ?" (2) If the answer to the above question be in the negative, then whether the aforesaid sum fell under item 9 of the Schedule to the aforesaid Agreement ?" 2. The circumstances under which the aforesaid two questions come up for our consideration are hereinafter stated in brief. The assessee, Bengal river Service Company Limited, was, at the material time, carrying on the business of plying of river boats. The assessment year with which are concerned in this reference is 1947-48, corresponding to the Calender year 1946, which is the accounting year. At a period of time when there had been no partition of India, certain vessels belonging to the assessee were requisitioned by the then Government of India 'on charter basis' It appears from the chart annexed to the statement of case that five vessels belonging to the assessee were requisitioned, in the year 1941, and seven other vessels were requisitioned in the year 1945. The first lot of 5 vessels were requisitioned in Calcutta and were all de-requisitioned, also in calcutta, in the year 1947. The other seven vessels were requisitioned at Narayanganj and were de-requisitioned, also at narayangunj, in the year 1947. We are, however, in this difficult position that we do not have the order of requisition on our records and we do not know under which particular provision of law the requisition had been made, although we are inclined to think that such requisition may have been made under the provision of the Defence of India Rules, which were in operation at that time. Also, we do not have the document of Charter-party on our records and do not know the terms thereof. Normally for requisition of property compensation is payable. Also, we do not have the document of Charter-party on our records and do not know the terms thereof. Normally for requisition of property compensation is payable. We would have proceeded on the basis that the sum of money that was being paid to the assessee, on account of the requisition, was compensation but the case proceeded on the basis that the money paid to the assessee was either vessel hire or vessel rent and may be treated as income. In the absence of the orders of requisition made and the charter, in which the agreement between the parties for user of the vessels by the government was included, no contention was raised before us that the money received by the assessee would not be income being compensation paid for requisition of property. We make this position clear at the outset, in order to emphasise upon the very narrow limits within which the arguments advanced both on behalf of the Revenue and the assessee were encompassed. At the point of time when the assessment was taking place partition of British India into India and Pakistan had already taken place. It is well known that the partition of India brought many problems in its wake. One such problem was the problem of double taxation for businessmen, who used to carry on business in both the geographical localities which ultimately became India and Pakistan. In order to solve their difficulties, there was an agreement between the then Dominons of India and Pakistan known as the agreement for Avoidance of Double taxation in India and Pakistan. It is necessary for us to refer to certain portions of that agreement, which was notified on December 10, 1947: "in exercise of the powers conferred by section 49a of the Indian Income Tax Act, 1922 (XI of 1922), section 11a of the Excess Profits Tax Act, 1940 (XV of 1940), and section 18a of the Business Profits Act, 1947 (XXI of 1947), as adapted by the India (Adaptation of Income Tax, Profits Tax and revenue Recovery Acts), Order, 1947, the Central Government is pleased to direct that all provisions of the annexed agreement for the avoidance of double taxation of income, profits and gains 101 under the said Acts which has been concluded between India and Pakistan shall be given effect to in the Dominion of India. Whereas the Government of the dominion of India and the Government of the Dominion of Pakistan desire to conclude an agreement for the avoidance of double taxation of income chargeable in the two dominions in accordance with their respective laws : now, therefore, the said two Governments do hereby agree as follows-Article I. ******* article II. ******* article III. ******* article IV.-Each Dominion shall make assessment in the ordinary way under its own laws; and, where either Dominion under the operation of its laws charges any income from the sources or categories or transactions specified in column I of the schedule to this Agreement (hereinafter referred to as the schedule) in excess of the amount calculated according to the percentage specified in columns 2 and 3 thereof, that Dominion shall allow an abatement equal to the lower amount of tax payable on such excess in their Dominion as provided for in article VI article V. ******* article VI.- (a) For the purpose of the abatement to be allowed under article IV or V, the tax payable in each dominion on the excess or the doubly taxed income, as the case may be, shall be such proportion of the tax payable in each Dominion as the excess or the doubly taxed income bears to the total income of the assessee in each Dominion. (b) ******* article VII. ******* article VIII. ******* article IX. ******* Source of income or nature of transaction from which income is derived. Percentage of income which each Dominion is entitled to charge under the Agreement. Remarks. 1 2 3 4 1. ******* 2. ******* 3. ******* 4. ******* 5. Income from "business" or "other sources" : - (a. . . . . . . . . . . . (b. . . . . . . . . . . . (c. . . . . . . . . . . . (d. . . . . . . . . . ., (e. . . . . . . . . . . . (f. . . . . . . . . . . . (g) Transport - Ships, Air, Road. 100 per cent. by the Dominion in which the traffic originates . Nil by the other 6. ******* 7. ******* 8. ******* 9. . . . . . . ., (e. . . . . . . . . . . . (f. . . . . . . . . . . . (g) Transport - Ships, Air, Road. 100 per cent. by the Dominion in which the traffic originates . Nil by the other 6. ******* 7. ******* 8. ******* 9. Any income derived from a source or category of transactions not mentioned in any of the foregoing items of this Schedule. 100 per cent, by the Dominion in which the income actually accrues or arises. Nil by the other 3. IT appear from the Statement of case, that the assessee earned Rs. 3,43,138/- in Calcutta and Rs. 7,296/- in Narayangunj (Pakistan. The Income tax, Officer held that the vessel hire rent to the tune of Rs. 3,43,138/- was income earned in the Indian Dominion and Rs. 7,296/- amounted to income earned in Pakistan and assessed the income accordingly. In so doing, he applied the provisions of item 9 of the schedule to the Agreement for Avoidance of Double Taxation in India and pakistan hereinbefore quoted. The assessee disputed that the aforesaid sum of Rs. 3,43,138/- received in India (since partitioned), was an income exclusively received in India and claimed that the income must be deemed to be covered by item 5 (g) of the Schedule to the agreement and be taxed accordingly this contention did not appeal to the income Tax Officer and he taxed the income in accordance with the provisions of item 9 of the Agreement. 4. Aggrieved by the order, the assessee appealed before the Appellate assistant Commissioner, who affirmed this part of the assessment order of the income Tax Officer with the following observation : "* * * The appellant urges that the vessel hire earned by the assessee company should be taken in the same category as freight and the allocation of the inter Dominion Share should have been made accordingly. I find, however, that the vessels were requisitioned by the Government of India and the vessel hire arose and accrued in India and the assessee can adduce no evidence to prove that any expenses were paid by the assessee company and debited to the profit and loss account. Hence, I find that the allocation made by the i. T. O. is quite correct. Hence, I find that the allocation made by the i. T. O. is quite correct. " Thereupon, the assessee took an appeal before the Income Tax Appellate tribunal which differed both from the income Tax Officer and the Appellate assistant Commissioner, on the following grounds : "during this period, the Government requisitioned boats on the charter basis. The payment on account of charter was upon the tonnage of goods carried. The assessee received Rs. 3,43,138/ - in the Indian Dominion (since partitioned) and Rs. 7,296/- in Pakistan (since partitioned. The Income Tax officer held that so far as the amount of rs. 3,43,138/ - was concerned, it was an income exclusively received in India and was not covered by Item 5 (g) of the Schedule to the Agreement for avoidance of Double Taxation in India and Pakistan. The Appellate Assistant Commissioner concurred with this view. It was argued before us there was no material to hold that the chartered boats were hired exclusively from Indian part and the income accrued to India alone. It was stated that this part of the income was also in the nature of freight earned by the assessee and should come under the head of 5 (g) of the aforesaid agreement. In our opinion, this argument has some force. The goods were transported through these boats either on the basis of freight payable to the assessee according to the weight and nature of the goods or on the basis of agreement of charter by which freight was paid by weight. In our opinion, it makes no difference that the hire receipt on account of charter was on a different footing and it could be very well classed under the head of freight. In this view of the matter, we consider that it should come under the head of 5 (g) of the schedule to the agreement and be referable to income from transport as given under the same Schedule. In this view of the matter we direct that the Income Tax Officer will revise the assessment in accordance with the directions given in this order. " 5. The Commissioner of Income tax thereupon obtained reference of the two questions of law hereinbefore quoted to this Court for opinion. 6. MR. In this view of the matter we direct that the Income Tax Officer will revise the assessment in accordance with the directions given in this order. " 5. The Commissioner of Income tax thereupon obtained reference of the two questions of law hereinbefore quoted to this Court for opinion. 6. MR. B. L. Pal, learned counsel for the Revenue, did not dispute that prior to the time when the vessels were requisitioned, the assessee was carrying on business of transport by vessels. The assessee was earning freight for such transport. If the vessels had not been requisitioned, freight earned by the assessee might have been taxed cent per cent by the dominion in which the traffic originated and nil by the other dominion, under the provision of item 5 (g) of the Schedule to the Agreement. The requisition, in his submission made all the difference. The hire which the assessee was earning, for such requisition, did not fall under 5 (g) but fell under the residuary article, namely, article 9 of the schedule to the Agreement. In support of this contention he invited our attention to a Scotch decision tn (1) Sutherland v. Commissioner of Inland Revenue, 12 T. C. 63, in which the facts were as hereinafter stated. The appellant Southerland was the Managing owner of a steam drifter which was, until December 15, 1915, engaged in Herring fishing. At that date the boat was compulsorily taken over by the admiralty on hire and assessment of Excess profit Duty was made for the period ended March 1916, in respect of profits of the boat including sums received from the Admiralty in respect of hire. The appellant contended that under the hiring a new and entirely different business was commenced, or alternatively that the payments made by the Admiralty represented compensation for the stoppage of business. This argument was repelled by the Lord President (Strathclyde) with the following observation : "the Appellant plausibly contends that his fishing industry was brought to an end by the intervention of the Admrialty and that the hiring by the Admiralty subsequently must be viewed as compensation to him for the stoppage of his business. This argument was repelled by the Lord President (Strathclyde) with the following observation : "the Appellant plausibly contends that his fishing industry was brought to an end by the intervention of the Admrialty and that the hiring by the Admiralty subsequently must be viewed as compensation to him for the stoppage of his business. That is the argument set out in the Stated Case, but it was more plausibly contended by his counsel that when the charterparty was effected the fishing trade came to an abrupt termination and that, under the hiring, a new and entirely different business was commenced, and hence there was no Prewar standard available in which to base the change of Excess Profits Duty. And I did not understand it to be disputed that, if the fishing industry came to an end and an entirely new and distinct industry was commenced by hiring under this charterparty, then the Crown's claim for duty would fail. But I am not disposed to view the case in that light. When the Appellant acquired this ship, he acquired her as an instrument, or, as the Lord Advocate phrased it, a commercial asset, susceptible of being put to a variety of different uses in which gain might be acquired, and whichever of these uses it was put to by the Appellant and profits earned, he was carrying on the same business, even although alterations were necessary on the vessel for the changed purpose, provided that each of these uses was one for which she as a ship was adapted. It is true in a sense tha fishing is a different industry from minesweeping, or trading, or patrolling, or watching a gap in a boom, or the like, but viewed from the standpoint of the shipowner, they are the same business because in each of his vessel, if she earns profits, is employed for gain. It is the same piece of machinery, or implement, or commercial asset which is used to acquire profit. In short the business is that of the employment of a ship for gain in ordinary ship owning business. In other words, if this drifter were put to a purpose for which she as a ship is suitable, then whatever alterations might be necessary in order to adapt her for that use, if she earns profit therein, these profits are, I think, assessable to the Excess Profits Tax. In other words, if this drifter were put to a purpose for which she as a ship is suitable, then whatever alterations might be necessary in order to adapt her for that use, if she earns profit therein, these profits are, I think, assessable to the Excess Profits Tax. " It is difficult to appreciate how the case relied upon by Mr. Pal helps him in his argument. If, in spite of the requisition of the vessels, the assessee was carrying on the same trade or business, then the requisition did not alter the nature of the business of the assessee. Admittedly, the business of the assessee prior to requisition was transport by ship. Income from such business admittedly came under item 5 (g) of the schedule to the Agreement for Avoidance of Double Taxation in India and Pakistan. There is no dispute on this point. If even after requisition, the assessee was carrying on the same business, there is no reason why the income should not continue to be governed by the same item. Mr. Pal, however, contended that the decision helped him to this extent that the user to which the vessels were put were different user, that is to say, different from the business of transportation. According to him the different user to which the vessels were put made all the difference. He emphasised upon the explanation of Sutherland's case (supra) by the Supreme Court in (2) Commissioner of Excess Profit Tax v. Shri luxmi Silk Mills, (1951) 20 ITR 451 at 456 : "we however, are in respectful agreement with the observations of Lord president Strathclyde in Sutherland v. Commissioner of Inland Revenue, 12 TC 63, that a commercial asset susceptible of being put to a variety of different uses in which gain might be acquired and whichever of these uses it was put to by the appellant, the profit earned was an user of the asset of the same business. A mere substituted use of the commercial asset does not change or alter the nature of that asset. Whatever the Commercial asset produced is income of the business of which it is an asset, the process by which the asset makes the income being immaterial. " 7. We are again unable to find any support to the argument advanced by Mr. Pal from the Supreme Court decision cited by him. Whatever the Commercial asset produced is income of the business of which it is an asset, the process by which the asset makes the income being immaterial. " 7. We are again unable to find any support to the argument advanced by Mr. Pal from the Supreme Court decision cited by him. It may be that prior to the requisition of vessels the assessee used to enter into private contracts with different parties and under such contract transport their goods. The requisition brought about this change in the business that the assessee was no longer able to enter into such private contracts. The vessels, after requisition, had to be used entirely for the purpose of transport, to which the requisitioning authorities elected to put them, and the assessee became entitled only to such income as the terms of the charter with the Government entitled him. This, in our opinion, did not introduce any change in the nature of the business, so as to take the business of the assessee out of the description given in item 5 (g) of the schedule to the Agreement and fit it in with the residuary item in Art. 9 thereof. A source of income namely, the business which the assessee used to carry on prior to the requisition and which source admittedly fell under item no. 5 (g) of the Agreement did not become a different source because there was change of Customer. Mr. Pal made a last attempt to establish his proposition that although the business might be the same the source was different. What he intended to argue was that it was the source of the income which should be looked into and not the identity of business. He submitted that the source of the income of the assesses in the business, prior to the requisition, was the earning freight under private contracts for carriage of goods. After requisition the source became receipt of hire for the requisitioned vessels. He submitted that the source under item 5 (g) of the Agreement was limited to freight earned by private contract for transport by Ship. Under the order of requisition the source was hire of the vessels requisitioned under a charter, which was a different source. He drew our attention to a decision of the Privy Council in (3) Liquidator, Rhodesia Metals ltd. Under the order of requisition the source was hire of the vessels requisitioned under a charter, which was a different source. He drew our attention to a decision of the Privy Council in (3) Liquidator, Rhodesia Metals ltd. (in Liquidation) v. Taxes Commissioner, (1940) 3 a. U. F. R. 422 at 426: "source means not a legal concept but something which a practical man would regard as a real source of income the ascertaining of the actual sources is a practical hard matter of fact. " 8. HE submitted that notionally the business might be the same business but as a result of the requisition the source of the income considerably changed and no practical man would regard the real source of income as income from the transportation business, when, in reality, the income was earned in the shape of hire under an order of requisition. In our opinion, the distinction sought to be established by Mr. B. L. Pal is somewhat thin. The context in which the above observation was made by the Privy Council was like this-the appellant company was incorporated in England, and its principal place of business was in country. It acquired certain mining claims in Rhodesia by a contract made in England. Later, it went into voluntary liquidation and sold its whole undertaking to another company, also incorporated in England, making a considerable profit. This later agreement was also made in England. The sole business of the appellant company was the purchase and development of immoveable property in Rohdesia. It was assessed to income-tax in respect of the sum of 1,46,000 and contested the assessment on the grounds, (1) that the amount of 1,46,000 was of a capital nature, and (ii) that it was not received, and did not accrue, from a source within Southern Rhodesia. The assessement was made under the provisions of the Ordinance of Southern rhodesia, which provided, inter alia, that tax payable on "the total amount other than receipts proved by the taxpayer to be of a capital nature, "received by or accrued to or in favour of any person in any year. . . . . . . . . . from any source within the territory. . . . . . . . . . . . ". . . . . . . . . . from any source within the territory. . . . . . . . . . . . ". In that context, the Privy Council held that the amount of 1,46,000/- was income and not capital; and further that the amount was received from a source within Southern Rhodesia, namely the mining claims which the company had acquired and developed there. We are of the opinion that the context in which the aforesaid observation was made by the Privy Council is different and need not have inspired Mr. Pal in advancing the argument that he did before us. In the instant case, as we have already observed, we are under certain disadvantage for paucity of materials. We do not know under which Act the requisition was made. We do not know the terms on which the requisition was made. Neither the order of requisition nor the charter which provided for payment of "hire" after requisition is before us. Whether the assessee was plying the vessels as before but only for a singular customer, namely the Government, and was earning such freight under the nomenclature "hire", as it used to do previously we do not know. Therefore, we are not in a position to uphold the argument of Mr. B. L. Pal that the source must be deemed to be a completely different source of income, which misfitted with the income covered by item 5 (g) of the schedule to the agreement. On the materials before us and regard being had to the nature of the argument advanced before the tribunal, we are of the opinion that the tribunal was not wrong in arriving at the conclusion that the goods used to be transported by these boats either on the basis of freights payable to the assessee according to weight and nature of the goods or on the basis of agreement of charter by which also freight was paid by weight. This made no difference and the hire received on account of the charter was not different from the description of income under item 5 (g) of the agreement. In the result, we answer question (1) in the affirmative. In view of our affirmative answer to question 1, Question (2) need not be answered. The assessee is entitled to costs of this reference.