JUDGMENT

Spens, C.J.

This is an appeal, by the Governor-General in Council, from a decree passed by a Special Bench of the Calcutta High Court exercising its ordinary original civil jurisdiction. The decree declared that the words "or, are deemed to accrue or arise" in Section 4. (1) (C) of the Income Tax Act and Expln. 3 to Section 4 (1) of the Act were beyond the lawmaking powers of the Indian Legislature and were therefore void and had no legal effect, and it directed refund to the plaintiff of a sum of Rs. 4 lakhs and odd paid under protest. The provisions taken objection to by the High Court represent change introduced in 1939 into the Income Tax law of India. It was contended on behalf of the Government (i) that the suit was not maintainable, and (ii) that the impugned provisions of the Incometax Act were intra vires the Indian Legislature.

2. The plaintiffthe Raleigh Investment Co. Ltd is a jointstock company incorporated under the English Companies Act, having its registered office at 13, Athol street; Douglas, in the Isle of Man, and its main office at Egham, Surrey, England. It has no business premises in India, but holds the bulk of the shares in eleven companies which carry on the business of manufacturing and selling tobacco and cigarettes in India. Two of these companies, referred to in the judgments of the High Court as "rupee companies," are incorporated in India under the Indian Companies Act and have their registered office and business head-quarters at Calcutta. The nine remaining companies referred to as the "sterling companies," are companies registered under the English Companies Act. They are controlled in London, where the Boards of Directors sit, the share registers are situate and dividends are declared. The Boards in London have constituted Boards which are situate in India. The business in India, where all profits are made, is managed by the local Boards. The ultimate control lies with the London Boards. No share registers are kept| in India. The financial policy of the companies is controlled by the London Boards and in all important matters of business the London Boards are consulted. All the general meetings of the companies are held in England. The registered offices of six of the sterling companies are in the Isle of Man and of three others in London; but all the sterling companies have offices in London.

3. The eleven companies were assessed to income tax and to super-tax on their income during the year 1938-1939 and these taxes have been paid. Dividends were declared by the eleven companies; and, according to statements filed by the plaintiff-company, it received, for the year 1938-1939, a sum of Rs. 75,45,197 as dividend from the eleven companies. Dividends from the two "rupee companies" were paid to a representative of the plaintiff-company in Calcutta. The dividends of the nine "sterling companies" were declared by them in England and paid by them in England to the plaintiff-company in England. The dispute in this case relates to the claim of the Indian Government to levy Income Tax and super-tax on the dividends paid to the plaintiff by the "sterling companies."

4. A brief reference to the scheme of the relevant provisions of the Income Tax Act will help to bring out the points at issue. As is well-known, a large number of companies not registered in British India are doing business in this country and the Indian administration has had to face certain difficult questions in attempting to assess to Income Tax and super-tax the profits made by such companies, especially when they carry on their business through the mechanism of another foreign company. The difficulty has been greater in respect of super-tax. In the case of companies, super-tax has, under the Constitution Act, to be regarded as being in the nature of corporation tax. Companies are not assessed to super-tax on a graduated scale like individuals or unregistered firms. The administration accordingly seeks to levy super-tax (properly