Judgement

Appeal (No. 50 of 1934) from a judgment of the High Court (February 27, 1933) upon a reference by the Commissioner of Income-tax under s. 66, sub-s.1, of the Indian Income-tax Act, 1922.

The questions referred to the High Court were "(1) Whether the Income-tax Officer, Companies Circle, Bombay, was justified in law in resorting to r. 35 of the Income-tax Rules for the purpose of assessing the Company to income-tax for the year 1931-32 having regard to the data furnished by it to that Officer.

"(2.) Whether the assessment of the Company to income-tax for the year 1931-32 is a legal assessment and binding upon it in view of the opinion expressed by this Honourable Court in Civil Reference No. 5 of 1928 (Commissioner of Income-tax, Bombay v. National Mutual Life Association of Australasia, Ld. ( 1931) I. L. R. 55 B. 637).”

The material facts and the relevant statutory provisions appear from the judgment of the Judicial Committee.

The High Court (Beaumont C. J. and Rangnekar J.) by separate judgments, answered both questions in the affirmative. The judgments are reported at ( 1933) I. L. R. 57 B. 519.

1935- Oct. 15, 17. Latter K.C., and Cyril King for the appellants. The second question only arises if the first is answered in the affirmative. The material contained in the revenue account and balance sheet of the Indian branch of the appellants business afforded more reliable data for arriving at the total income than the application of r. 35. Profits from investments made outside India do not arise directly or indirectly through or from a business connection or property in India, and this remains true notwithstanding that the capital invested and earning remuneration outside India may in part be taken to have arisen from money collected in India from policyholders. The returns made and the material submitted for the purposes of the assessment of the profits of the Indian branch were not insufficient or unreliable by reason of their containing no reference to the income of the investments of the company outside India. In assessing under r. 35 the Income-tax Officer took a proportion of the total surplus of the appellant companys business as the profits liable to Indian income-tax notwithstanding the fact that this surplus included all the receipts from participating policyholders which were admittedly not liable to tax. The adoption of a proportion of this surplus cannot be regarded as a reliable means of arriving at the taxable Indian profits.

Reference was made to Income-tax Chief Commissioner, Madras v. Bhanjee Ramjee & Co. (( 1921)

I. L. R. 44 M. 773.); Income-tax Commissioner, Burma v. Steel Bros. & Co., Ld. (( 1925) I. L. R. 3

R. 614.); New York Life Insurance Co. v. Styles (( 1889) 14 App. Cas. 381); Income-tax Commissioner, Bombay Presidency v. National Mutual Life Association of Australasia, Ld. (( 1931) I.

1 Law. Rep. 63 Ind. App. 99 ( 1935- 1936) National Mutual Life Assocn. of A Ltd v. C ommnr. I.T. Bom.

193

L. R. 55 B. 637.); Thomas v. Richard Evans & Co.; Jones v. South-West Lancashire Coal Owners Association.([ 1927] 1 K. B. 33, 46, 47.)

Rule 35 applies only in the absence of more reliable data; the appellants gave data on which profits could be assessed on any basis. The return shows all profits which arose in India. Even if r. 35 is applicable in the circumstances of this case the receipts and the surplus arising from the transactions of the appellants with their members should be excluded from the total income, profits or gains of the company referred to in that rule.

Dunne K.C., and Reginald Hills for the respondent. The appellants have to render an account of the profits of their Indian business. Under Styless case (3) the respondent is entitled to tax all profits made on the life fund. The Chief Justice said that the respondent was in India entitled to tax profit made by the main company out of moneys remitted from India which were invested by the company. The life fund, in which the Indian branch was