Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1953 Supreme(SC) 129

SUPREME COURT OF INDIA
18th December 1953
MAHAJAN, S.R. DAS, GHULAM HASAN AND JAGANNADHA DAS, JJ.
Commr. of Income-tax / Excess Profits Tax, Bombay City, Appellant
Versus
Messrs. Bhogilal Lacherchand including Batliboi and Co., Bombay, Respondent.
Civil Appeal No. 160 of 1950.
Advocates appeared
Shri C. K. Dephtary, Solicitor-General for India, (Shri Porus A. Mehta, Advocate, with him), instructed by Shri G. H. Rajadhyaksha, Agent, for Appellant; Shri R. J. Kolah, Advocate, instructed by Shri Rajinder Narain, Agent, for Respondent.

Advocates:
C.K.DAFTARY, G.H.RAJADHYAKSHA, PARAS A.MEHTA, R.J.KOLAG, RAJENDER NARAIN

S. 42(1) of the Indian Income-tax Act, 1922, has application to the case of a resident assessee as well as a non-resident assessee.

Headnote:
INCOME TAX - S. 42(1) - Applicability to resident assessees - Whether S. 42(1) of the Indian Income-tax Act, 1922, has application to the case of a resident assessee or whether its scope is limited to non-resident assessee alone.
Fact of the Case:

The assessee, a Hindu undivided family carrying on business in Bombay, Madras, and the Mysore State, was taken over by a registered firm on March 17, 1942. During the relevant accounting year, the Mysore branch purchased goods from the Bombay head office and the Madras branch worth Rs. 2,45,455. The Income-tax Officer estimated the Mysore branch's purchases in British India at Rs. 3,00,000 and its profits at Rs. 75,000 on the sale of these goods in Mysore. The Income-tax Tribunal ruled that no part of the Mysore profit could be taxed in British India, as S. 42 could not be invoked in the case of a resident assessee.
Finding of the Court:

The court held that S. 42(1) of the Indian Income-tax Act, 1922, has application to the case of a resident assessee as well as a non-resident assessee. The court found that the plain language of the Section did not restrict its application to non-residents only and that the legislative history of the Section supported this interpretation.
Issues: Whether S. 42(1) of the Indian Income-tax Act, 1922, has application to the case of a resident assessee or whether its scope is limited to non-resident assessee alone.
Ratio Decidendi: The court held that the plain language of S. 42(1) did not restrict its application to non-residents only. The court also found that the legislative history of the Section supported this interpretation. The court noted that the words "any person residing out of British India" were deleted from S. 42(1) in 1939, and that this change was made to make the Section applicable to any person who had any income which in a primary sense arose in British India, even though technically it had arisen abroad, irrespective of the circumstance whether that person was resident, ordinarily resident or not ordinarily resident.
Final Decision: The court allowed the appeal and answered the question referred to the High Court in the affirmative.

Judgment

MAHAJAN J. : This is an appeal from the Judgment of the High Court of Judicature at Bombay delivered on a reference under S. 66(1) of the India Income-tax Act, 1922, whereby the High Court answered the first referred question in the negative.

2. The assessment in question concerns the year 1943-44. A Hindu undivided family was carrying on business in Bombay, Madras and the Mysore State. Its business was taken over by a registered firm on 17th March 1942. For the purpose of this appeal however this circumstance is not material. The case has been dealt with on the assumption that a single assessee carried on business from 10th October 1941 to 8th November 1942, the relevant accounting year. According to the assessee, during this period the Mysore branch purchased goods form the Bombay head office and the Madras branch of the value of Rs. 2,45,455. The Income-tax Officer estimated these purchases of the Mysore branch in British India at Rs. 3,00,000 and its profits at Rs. 75,000 on the sale of these goods in Mysore. In view of the provisions of S. 42 of the Act half of this profit i. e., to the extent of Rs. 37,000, was deemed to accrue or arise in British India, because of the business connection of the non-resident branch in British India.

3. It was contended that the assessee being a person resident in India, S. 42 could not be invoked in the case, because that Section had application only to cases of non-residents. The Income-tax Tribunal following the decision of the Bombay High Court in --- Commr. Of Income-tax v. Western India Life Assurance Co. Ltd., AIR 1946 Bom 185 (A), upheld 156 this contention, and ruled that no part of the Mysore profit could be taxed in British India. At the instance of the Commissioner of Income-tax / Excess Profits Tax, Bombay City, three questions were referred to the High Court under S. 66(1), the first of these being :

"Whether in the circumstances of the case can the profits on the sale of goods in the Mysore State be deemed to accrue or arise in British India under S. 42(1) of the Indian Income-tax Act."

The High Court returned an answer to the question in the negative after resettling it in these terms :

"Whether on the facts and the circumstances of the case the Income-tax Officer was right in applying the provisions of S. 42(1) of the Income-tax Act and holding that Rs. 37,500 were profits deemed to accrue in British India and including in the assessment a portion thereof :

This appeal is before us on the certificate granted by the High Court, and the only question canvassed here in whether S. 42(1) of the Indian Income-tax Act has application to the case of a resident assessee or whether its scope is limited to non-resident assessee alone.

4. It is common ground that if S. 42 of the Act has no application to the case of a resident assessee the whole of the Mysore profit, namely, Rs. 75,000 cannot be included in the assessment of the year 1943-44. On the other hand, if such an assessee is within the ambit of the Section, in that event the sum of Rs. 37,000 or any part of it would be liable to assessment during the assessment year in question.

5. S. 42 of the Act is in these terms :

"(1) All income profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind or through or from the sale, exchange or transfer of a capital asset in the taxable territories shall be chargeable to Income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax;

Provided that whether the person entitled to the income, profits or gains is not resident in the taxable territories, the income-tax so chargeable may be recovered by deduction under any of the provisions of S. 18 and that any arrears of tax may be

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1953 Supreme(SC) 129

S. 42(1) of the Indian Income-tax Act, 1922, has application to the case of a resident assessee as well as a non-resident assessee.

Cases Referred (1)