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NATIONAL BANK OF INDIA v. COMMISSIONER OF INCOME TAX
NLR40V193
1939 Present:
Poyser S. P. J. and Hearne J.
NATIONAL BANK OF INDIA v. COMMISSIONER
OF INCOME TAX
D. C. Inty. (Special ) 59
Income tax-Interest on
overdrafts given by bank to debtor in London-Change of residence by debtor to
Ceylon-Income arising in Ceylon or not-Viability of bank-Income Tax Ordinance,
1932. ss. 5 (1) (b) and 44 (1) (3).
A, who resided in England in the year 1928, obtained overdrafts from the
National Bank of India, Ltd., which were secured by the deposit of shares owned
by him in companies registered in Ceylon and by sterling securities, the
property of A's brother. It was one of the terms of the contract implied, if not
expressed, that both the principal and the interest should be payable to the
bank in England. In April, 1936, A became a resident in Ceylon within the
meaning of section 33 of the Income Tax Ordinance.
Held, that the interest payable on the overdrafts cannot be said to be
income ?arising in or derived from Ceylon? within the meaning of section 5 (1)
(b) of the Income Tax Ordinance and that the National Bank of India cannot be
assessed for income tax in respect of the same.
THIS
was a case stated for the opinion of the Supreme Court by the Board of Review
under section 74 of the Income Tax Ordinance.
The National Bank of India was assessed in the name of its agent, the National
Bank of India, Colombo, for the year of assessment 1937-1938 in respect of a sum
of Rs. 13,102, as being income arising in or derived from Ceylon by the National
Bank of India, Ltd., London. The tax payable has been assessed at Rs. 1,310. 20.
The income consisted of interest payable in respect of the year of assessment by
a client, who has been resident in Ceylon within the meaning of section 33 of
the Income Tax Ordinance as from April, 1936, but who was non-resident for
several years prior to that. The interest accrued upon two sterling overdrafts
granted to the client in London, while he was resident in London. One of these
liabilities was a loan on the security of shares in companies registered in
Ceylon and owned by the borrower, on which the interest taxable for the year was
Rs. 1,147. The other liability was against sterling securities owned by the
client's brother, on which the taxable interest amounted to Rs. 11,955.
Upon these facts the Income Tax Assessor assessed the National Bank of India,
London, as having a taxable income arising in or derived from Ceylon equal to
the two sums of Rs. 1,147 and Rs. 11,955.
The bank appealed against the assessment of the Commissioner under section 69 of
the Income Tax Ordinance and the Commissioner confirmed the assessment. The bank
thereupon appealed to the Board of Review under section 71 of the Ordinance. The
Board of Review allowed the appeal; whereupon the Commissioner applied to the
Board to state a case for the opinion of the Supreme Court.
J. W. R Ilangakoon, K. C., A.
-G. (with him S. J. C. Schokman, C. C), for Commissioner of Income
Tax, appellant. -The question is whether two sums of money which represent
interest payable by A, who is now resident in Ceylon, to a Bank in London
(non-resident) on two overdrafts given to A while tie was in London is taxable.
A has been resident in Ceylon since 1936. The two debts constitute property
situated in Ceylon and therefore, the interest derived from them is taxable
under section 5 (1) (a). See also sections 5 (2) and 6 (1) (e). The fact that A
is in default in the payment of interest to the Bank makes no difference-section
9 (3) of Ordinance No. 2 of 1932, as amended by Ordinance No. 27 of 1934.
The question turns on whether the Bank can be said to have derived any income
from property in Ceylon.
The two overdrafts constitute two simple contract debts. They are loans by the
bank to a customer who had an account with them. Are they ?property ?? Is so,
are they situated in Ceylon? These debts are
