Judgement

Appeal (No. 37 of 1929) from a judgment and order of the High Court (March 13, 1928) upon a reference under s.66, sub-s.2, of the Indian Income-tax Act, 1922.

The following facts appeared from the reference and the documents annexed thereto. The Hong Kong Trust Corporation (hereinafter referred to as "the Hong Kong Company ") was incorporated in Hong Kong with the object of carrying on the business of bankers and financiers, and was resident in Hong Kong. The respondent company was incorporated as a private company at Bombay with similar

Law. Rep. 57 Ind. App. 49 ( 1929- 1930) Commissioner of Income Tax, Bombay v. Bombay Trust

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objects. During the years of assessment—namely, those ending on March 31, 1925 and 1926—the Hong Kong company had lent to the respondent company large sums on deposit at 5J per cent, interest. The advances constituted substantially the whole of the available capital of the Hong Kong Company, including both its paid up capital and money deposited with it. The respondent company remitted the interest due to the Hong Kong Company.

Under a notice pursuant to s. 43 of the Act served on the respondent company, it was held that that company was to be deemed to be the agent of the Hong Kong company, and it was assessed to tax under the Act in respect of the payments of interest.

The respondent company in pursuance of s.66, sub-s.2, of the Act required the Commissioner to refer to the High Court questions of law arising out of the decision.

The questions referred, and the provisions of ss. 40, 42, sub-s. 1, and 43 of the Act of 1922, appears from the judgment of the Judicial Committee.

The High Court (Marten C.J. and Kemp J.), in answer to the questions submitted, held, shortly stated (1.) that the interest paid was a profit or gain accruing or arising to the Hong Kong company from a business connection in British India, also directly under s. 4, sub-s. 1, and s. 6 (iv.) and (vi.), and accordingly was liable to income-tax ; (2.) that though the respondent company by s. 43 was to be deemed to be an agent for the Hong Kong company for the purposes of s. 42, the tax could not be levied upon them, as they had not received the interest as required by s. 40.

The proceedings are reported at I. L. R. 52 B. 702.

1929. Nov. 5. Dunne K.C. and R. Hills for the appellant. The fact that the respondent company did not receive the interest on behalf of the Hong Kong Company does not relieve them of liability. Sects.42 and 43 deal expressly with the profits or gains of a person resident out of British India through a business connection therein ; there is no ground for reading s.40 with ss.42 and 43. Under

s.43 the respondent company was to be deemed for all the purposes of the Act to be the agents of the Hong Kong company. Accordingly, under s.42, sub-s.1, those profits and gains were chargeable to tax in their name, and they were to be deemed the assessee which by s. 2, sub-s. 2, means the person by whom the tax is payable. The terms of s.42, sub-s.1, are clear, and should not be varied by speculations as to the intention of the legislature. The provisions of s. 57 assist the appellants contention. The majority decision of the Calcutta High Court in 1922 in Imperial Tobacco Company of India v. Secretary of State for India (1) under the Act of 1918 does not affect this appeal.

Latter K.C. and E. B. Raikes K.C. for the respondent. Sect. 40 in terms refers to an agent of a person residing out of British India, and must be read with ss. 42 and 43. Unless the words as to receipt of the profits apply an agent may be liable under s. 42, although he has not the means of recouping himself from the beneficiary. Under s.18 the respondent company had no power to deduct the tax from the interest which it paid. Even if under s. 42 the respondent company is to be deemed the agent under s. 42, sub-s. 1, its liability as an agent depends upon s. 40. The words in s.42, sub-s.1, that the tax is chargeable in the name of the agent an