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1936 Supreme(SC) 42
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, LORD THANKERTON, SIR SHADI LAL, SIR GEORGE RANKIN, AND SIR GEORGE RICH.
COMMISSIONER OF INCOME-TAX, BOMBAY PRESIDENCY AND ADEN - Appellant
Versus
BOMBAY TRUST CORPORATION, LIMITED - Respondents
On appeal from the High Court at Bombay.
Decided On : July 17, 1936.
Solicitor for appellants:Solicitor, India Office. Solicitors for respondent: Linklaters & Paines.
Assessment cannot be based on mere skepticism of an assessee's records without positive evidence. Furthermore, a mandamus cannot be issued against a public servant solely to enforce a financial claim against the Crown when statutory remedies for challenging assessments are available.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 42 and 43 - Business connection - Evidence for assessment - Assessment of a foreign company through its agent in India - Where books of account and declarations show that loans were repaid and replaced by a loan from another entity, tax authorities cannot, without positive evidence, treat such transactions as a fiction to justify assessment - Mere skepticism of the assessee's evidence is insufficient to support a finding of taxable income in the absence of contrary evidence. (Paras 151-152)
(B) Indian Income-tax Act, 1922 - Section 66 - Duty to dispose of case accordingly - After a court decides a question of law, the tax authority must act accordingly, but this does not necessarily preclude the authority from exercising general powers of inquiry under Section 33 to determine if a valid assessment can be made on different grounds. (Para 154)
(C) Specific Relief Act, 1877 - Section 45(g) - Mandamus against servant of the Crown - A court cannot issue an order against a public servant merely to enforce the satisfaction of a claim upon the Crown - Where a statutory remedy exists to challenge a summary assessment, the party must pursue that remedy rather than seeking a direct order for refund from the court. (Paras 155-156)
Facts of the case:
A foreign company was assessed to income tax through its agent in India based on a business connection. The agent claimed that loans from the foreign company were repaid and replaced by a loan from a third party. The lower court found no evidence to support the assessment. Subsequently, the tax authorities attempted a fresh assessment and withheld the refund of tax paid under protest, demanding a third-party guarantee. The agent then applied to the lower court for a refund under the Specific Relief Act, which the court granted.
Findings of Court:
The court held that the assessment for the year in question lacked evidence. While the tax authority could order further inquiries, it could not arbitrarily withhold refunds or impose third-party guarantees. However, the lower court erred in granting a refund under the Specific Relief Act as it violated the principle that mandates cannot be issued against servants of the Crown to enforce claims against the Crown, especially when statutory remedies for challenging assessments were available.
Issues: Whether there was evidence to justify the assessment of a foreign company through its agent; whether the tax authority could initiate a fresh assessment after a court's negative finding on a reference; and whether a court could order a refund against a public servant under the Specific Relief Act.
Ratio Decidendi: Assessment requires positive evidence; mere disbelief of the assessee's books is insufficient. While tax authorities have discretionary powers of inquiry, they must follow statutory procedures. A mandamus cannot be issued against a servant of the Crown solely to satisfy a financial claim against the Crown, particularly when the assessee has failed to utilize the statutory mechanism to set aside a subsequent assessment.
Result: Appeal against the finding on evidence dismissed; appeal against the order for refund allowed and the order set aside.
Legal Category Hierarchy
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taxation
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income tax
- agency and business connection
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income tax
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administrative law
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writs
- mandamus
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writs
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practice and procedure
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evidence
- books of account
- specific relief act
-
evidence
Judgement
Consolidated Appeals (Nos. 85 of 1935 and 1 of 1936) from two judgments of the High Court, one (August 29, 1933) passed on a reference under s. 66 of the Indian Income-tax Act, 1922, the other (September 19, 1934) upon an application under the Specific Relief Act, 1877.
The reference related to an assessment to income-tax made upon the respondent, the Bombay Trust Corporation, Ld., as agents of the Hong Kong Trust Corporation, Ld., registered and carrying on business in Hong Kong, for the year of assessment 1928-29. The question was whether there was any evidence upon which the income-tax authorities could in law find that in 1927 the Hong Kong company received from the Bombay company any sums as interest on money lent. The question referred to the High Court was " Whether there was any evidence to justify the finding of the Assistant Commissioner that for the year of assessment, profits and gains accrued or arose to the Hong Kong Trust Corporation through its business connection with the Bombay Trust Corporation.”
The proceedings under the Specific Relief Act were brought for an order (inter alia) that the Commissioner should refund and pay back to the Bombay company the tax which had been paid by
Law. Rep. 63 Ind. App. 408 ( 1935- 1936) Commnr. of I.T., Bombay v. Bombay Trust Corpn. Ltd
147
the company pending the determination of the question referred, the High Court (Beaumont CJ. and Blackwell J.) having answered that question in the negative.
The facts appear from the judgment of the Judicial Committee.
On the application under the Specific Relief Act the High Court (Beaumont CJ. and Rangnekar J.) made an order directing the Commissioner to set aside the original assessment and to repay to the applicant the tax paid, with interest.
1936. June II, 12, and 15. Dunne K.C and Sir Thomas Strangman for the appellants. The respondent applied under the Specific Relief Act for an order in the nature of a mandamus upon the Commissioner to discharge the assessment and repay the money—to carry out the order of the High Court upon the reference. An order was made by the High Court directing repayment at once. The question arises as to the jurisdiction of the High Court to interfere in the matter at all. Sect. 106, sub-s. 2, of the Government of India Act, 1915 (5 & 6 Geo. 5, c. 61), it is submitted, withdraws from any original jurisdiction of the High Court any power to issue orders to the authorities who are entrusted with the administration of the revenue collections, and the order which has been passed by the High Court is one by which, practically, the Commissioner is being directed as to what he is to do. Further, it is quite clear that under s. 67 of the Indian Income-tax Act, 1922, no proceeding is permissible as lying against Government for anything done by the Officer in connection with the assess ment. In all these cases the onus is thrown upon the assessee to produce the evidence for the purpose of getting himself out of the claim to assess him, and to prove the circumstances under which he claims that his return is correct. [Sect. 45 (b), {c), (d), (e), (f), (g) and (h) of the Specific Relief Act, 1877, were read.] The appellants found on s. 45 (g) " to make any order on any other servant of the Crown, as such, merely to enforce the satisfaction of a claim upon the Crown.” [Reference was made to Alcock, Ashdown & Co. v. Chief Revenue-Authority, Bombay. (( 1923) L.
R. 50 I. A. 227, 232.)]
There is only one question in this case was there any evidence to justify the assessment ? The High Court have said that there was none, and on that the assessment has been set aside. The question then arises whether there is anything in the Act or the judgment of the High Court which could prevent the assessing officers from proceeding to tax this company afresh and proceeding with a new assessment. There is nothing. There is nothing to get rid of the original liability of the respondent to be assessed under this Act, and if in
