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HIGH COURT OF CALCUTTA
CHAKRABARTI, DAS GUPTA
S. K. DUTT, INCOME-TAX OFFICER - Appellant
Versus
ANGLO-INDIA JUTE MILLS CO. LTD. - Respondent
A. F. O. O. 151 Of 1956
Decided On : MARCH 21, 1957
INCOME TAX - Section 18 (3-A) - 'Residence' - Meaning of - Whether physical residence or residence as defined in the Act - Held, 'residence' contemplated in Section 18 (3-A) is residence as defined in the Act and not physical residence.
Fact of the Case:
The respondent company purchased the entire share capital of Landale and Clarice Limited from Clive Investment Trust Company Limited, a Sterling Company registered in the United Kingdom. The transaction concerned 1,900 Preference Shares, purchased at the rate of Rs. 135 per share and 2,450 Ordinary Shares, purchased at the rate of Rs. 332-8-0 per share. The total price paid by the respondent company to its vendors for that lot of shares was Rs. 10,71,125. Out of that sum, the respondent company retained in its hands an amount of Rs. 1,48,812-8-0. It is said that parties to the transaction thought that the profit made by the vendovs out of this deal might attract the Capital Gains Tax and since it was not unlikely that the respondent company would be treated as an agent of the vendors, it was considered expedient to retain an amount which would be sufficient to cover the tax liability.
Finding of the Court:
The 'residence' contemplated in Section 18 (3-A) is residence as defined in the Act and not physical residence.
Issues: Whether the 'residence' contemplated in Section 18 (3-A) is physical residence or residence as defined in the Act.
Ratio Decidendi: 1. The scheme of Section 18 is that it requires persons responsible for making payments to third parties to make a deduction on account of tax, in certain cases irrespective of whether the payee is resident or nonresident in the taxable territories and in other cases if he is a non-resident. 2. The only reason which was urged before the learned trial Judge and repeated before us in support of the Department'3 contention was that to require a person, responsible for making payments to third parties, to decide for himself whether the payee was or was not a resident in the income-tax sense would be to impose upon him an impracticable task. 3. I do not, however, think that the argument of difficulty can be a sufficient justification for accepting the Department's contention, because some difficulty is inherent in the terms of the various sub-sections of Section 1. 8 and cannot possibly be avoided. 4. The definitions given in Section 4-A, if applied to Section 18 (S-A), would make that section wholly unworkable, I would not find any difficulty in holding that in construing Section 18 (3-A), the special definition of 'residence', contained in Section 4-A, could not be applied.
Final Decision: Appeal dismissed with costs.
( 1 ) THE principal point involved in this appeal has been called by the learned trial Judge a point of first impression. It is undoubtedly a point which has never arisen before and that was perhaps because no one ever thought of raising a point of this character.
( 2 ) THE facts are as follows. The respondent, Anglo-India Jute Mills Co. , Limited, is a company incorporated under the Indian Companies Act and carries on business in India. In 1947, the company purchased the entire share capital in Landale and Clarice Limited and the second largest lot was purchased from Clive Investment Trust Co. , Ltd. , a Sterling Company registered in the United Kingdom, The transaction concerned 1,900 Preference Shares, purchased at the rate of Rs. 135 per share and 2,450 Ordinary Shares, purchased at the rate of Rs. 332-8-0 per share. The total price paid by the respondent company to its vendors for that lot of shares was Rs. 10,71,125. Out of that sum, the respondent company retained in its hands an amount of Rs. 1,48,812-8-0. It is said that parties to the transaction thought that the profit made by the vendovs out of this deal might attract the Capital Gains Tax and since it was not unlikely that the respondent company would be treated as an agent of the vendors, it was considered expedient to retain an amount which would be sufficient to cover the tax liability. Apparently, till 1954, the amount continued to lie in the hands of the respondent company, no one making any demand for its payment or any payment out of it.
( 3 ) IN the meantime, on 9-3-1953, the Income-tax Officer, Companies District II, Calcutta, had completed the assessment of the Clive Investment Trust Company Limited for the assessment year 1948-49. That assessment had been made on the basis that the Clive Investment Trust Company Limited was resident and ordinarily resident in India and the total amount of tax payable under it had been determined at Rs. 3,72,372. As the asiessee company had gone into liquidation and apparently had 110 assets in India directly held by it, the Department was thrown on indirect modes of recovery. It must have known that the respondent company had had dealings with the Clive Investment Trust Company Limited and obviously thought that there might be some money owing from the respondent company to the Clive Investment Trust Company Limited. Accordingly, on 10-3-1954, the Income-tax Officer, Companies District II, Calcutta, issued a notice to the respondent company under Section 46 (5-A), Income-tax Act, and by that notice required the respondent company to pay him forthwith any amount due from it or held by it for or on account of the Clive Investment Trust Company Limited.
( 4 ) THE respondent company replied to the notice by a letter, dated 17-3-1954. It said that it had lying in its hands a sum of Rs. 1,48,812-8-0 which had been left in deposit by the Clive Investment Trust Company Limited and that the amount would be paid over together with interest, as soon as a Chalan was received. On the 20th of March following, the Income-tax Officer sent two Challam to the respondent company, one for a sum of Rs. 1,48,812-8-0 which was the amount known to him to be in ita hands and another left blank which was intended for the payment of such amount of interest as might be due. On the 27th of March following, the respondent company paid through its Managing Agents the whole of the aforesaid sum of Rs. 1,48,812-8-0 and a further sum of Rs. 1,822-7-0 on account of interest.
( 5 ) IT will be seen that up to that point of time, the Income-tax Officer was trying to realise the tax due from the Clive Investment Trust Company Limited under the assessment made of that company for the assessment year 1948-49. Now, however, he began to think on other lines. By a letter, dated 11-5-1954, he asked the respondent company to let hint know the price for which it had purchased the shares of Landale and Clarke Ltd. , and also whether it had de
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