1.    Credit against Pakistan tax.-

Subject to the provisions of this Schedule, under an agreement concluded under section 163, credit is to be allowed against Pakistan tax chargeable in respect of any income, the amount of the Pakistan tax so chargeable shall, subject to the provisions of the said agreement, be reduced by the amount of the credit.

2.    Credit admissible to residents.-

No credit under rule 1 shall be allowed against Pakistan tax for any assessment year unless the person in respect of whose income the tax is chargeable is resident in Pakistan in the relevant income year.

3.    Computation of credit.-

The amount of the credit to be allowed for foreign tax against Pakistan tax in respect of any income shall not exceed the amount which would be arrived at by applying the average rate of such tax to the doubly-taxed income.

4.    Tax credit in respect of dividends.-

(1)   Where the income includes a dividend and, under the agreement, foreign tax, whether chargeable directly or by deduction in respect of the dividend is to be taken into account in considering whether any, and if so what, credit is to be allowed against Pakistan tax in respect of the dividend, the amount of the income shall be treated as increased by the amount of the foreign tax appropriate to the dividend which falls to be taken into account in computing the amount of the credit.

(2)   Where the amount of the income is to be treated as increased under sub-rule (1), the foreign tax not chargeable directly or by deduction which is to be taken into account shall be that borne by the company paying the dividend upon the profits for the period for which the dividend is paid, or, if the dividend is not paid for a specified period, the profits of the last period for which accounts of the company were made up which ended before the dividend became payable.

Explanation.- In this sub-rule, "paid" means paid, credited or distributed or deemed to have been paid, credited or distributed, as the case may be.

(3)   Notwithstanding anything contained in sub-rules (1) and (2) and section 24, where any part of the foreign tax in respect of the income cannot be allowed as a credit against Pakistan tax, the amount of the income shall be treated for the purposes of Pakistan tax as reduced by that part of the foreign tax.

(4)   Where Pakistan tax payable depends on the amount received in Pakistan, the said amount shall be treated as increased by the amount of the credit allowable against Pakistan tax.

(5)   In computing the total income of a person for the purpose of determining the rate mentioned in rule 3, sub-rules (1) and (3) shall not apply and, for the reference in sub-rule (4) to the amount of the credit allowable against Pakistan tax, there shall be substituted a reference to the amount of the foreign tax in respect of the income.

5.    Limitation.-

(1)   Subject to the provisions of sub-rule (2), any claim for an allowance by way of credit for foreign tax in respect of any income shall be made to the Income Tax Officer not later than two years from the end of the assessment year for which that income falls to be charged to Pakistan tax or would fall so to be charged if any such tax were chargeable in respect thereof.

(2)   Where the amount of any credit given under the agreement is rendered excessive or insufficient by reason of any adjustment of the amount of any tax payable either in Pakistan or under the laws of any other territory, nothing in this Ordinance limiting the time for the making of assessment or claims for refund shall apply to any assessment or claims to which the adjustment gives rise, being an assessment or claim made not later than two years from the time when all such assessments, adjustments and other determinations have been made, whether in, Pakistan or else-where, as are material in determining whether any, and if so what, credit falls to be given.

(3)   The provisions of sections 96 and 97, sub-sections (1), (3) and (4) of section 99 and sections 100 and 103 shall, as far as may be, apply to tax credit under this Schedule as they apply to refunds.

6.    Provisions as the deduction of tax at source.-

(1)   The provisions of this rule shall have effect where an agreement concluded under section 163 provides for the exemption from Pakistan tax of any class of income arising to persons resident in the territory with the Government of which the agreement is made, being income from which deduction of tax is required to be made under this Ordinance.

(2)   Any person who pays income of any such class (hereinafter referred to in this rule as 'the Pakistan payer') to a person in the said territory who is beneficially entitled to the income (hereinafter referred to in this rule as 'the non-resident') may be required, by notice given by or under the direction of the Commissioner, to pay any such income to the non-resident without deduction of tax, and where such notice is given any income from any source specified in the notice, being income for a year for which the agreement has effect, which the Pakistan payer, after the date on which the notice was communicated, pays to the non-resident whose name is specified wherein shall, subject to the provisions of sub-rules (3), (4), (5) and (6), be paid without deduction of tax.

(3)   Any notice given under sub-rule (2) may be expressed to become ineffective if certain specified events happen or, whether so expressed or not, may be cancelled by a notice of cancellation given by, or under, the direction of the Commissioner, and if, to the knowledge of the Pakistan payer, any of those events happens or if such notice of cancellation is given, any payment made to the non-resident by the Pakistan payer after the happening of that event becomes known to the Pakistan payer or after the date on which that notice was communicated to the Pakistan payer, as the case may be, shall be subject to deduction of tax in accordance with this Ordinance.

(4)   If it is discovered, after a notice has been given under sub-rule (2), that the non-resident is not entitled to exemption from tax in respect of income from any source specified in the notice, any tax which, but for the notice, would have been deductible from any payment made to the non-resident by the Pakistan payer but by virtue of the notice has not been so deducted, shall, if a direction to that effect is given by or under the direction of the Commissioner, be deducted by the Pakistan payer out of so much of the first payment made to the non-resident after the date on which the direction was communicated to the Pakistan payer as remains after the deduction of any tax deductible therefrom under this Ordinance and any balance which cannot be deducted out of the first such payment shall be deducted, subject to the same limitation, out of the next such payment, and so on until the whole of the tax (the amount of which shall be specified in the direction) has been deducted.

(5)   Any tax which the Pakistan payer is required to deduct under sub-rule (4) shall be paid to the Federal Government and the provisions of section 50 shall, so far as may be, apply accordingly.

(6)   A notice may be given under sub-rule (2) where income is paid to a person authorised to receive that income on behalf of the non-resident, and in such a case the reference in this rule to payment to the non-resident shall be deemed to include reference to payment to that person.

7.    Definitions.-

(1)   In these rules,

(a)   "Pakistan tax" means income tax, super tax and surcharge chargeable in accordance with the provisions of this Ordinance; and

(b)   "foreign Tax", in relation to any territory with which an agreement for the avoidance of double taxation has been concluded under section 163, means any tax corresponding to Pakistan tax which is chargeable under the laws of that territory and for which credit may be allowed under the agreement.

(2)   Where an agreement concluded under section 163 provides for any tax chargeable under the laws of the territory concerned being treated as income tax, that tax shall, notwithstanding anything contained in clause (b) of sub-rule (1) be treated as foreign tax.

(3)   Any reference in this Schedule to foreign tax shall be construed, in relation to credit to be allowed under any agreement concluded under section 163, as a reference only to tax chargeable under the laws of the territory with the Government of which the agreement was made.