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Issues Involved:
1. Assessability of interest received by the Durbar on a loan. 2. Assessability of managing agency commission received by the Durbar. 3. Assessability of income derived from properties purchased in execution sales. 4. Taxability of dividends received from Sir Shapurji Bharucha Mills Ltd. 5. Taxability of dividends received from C.P. Cement Co. Ltd. 6. Entitlement of the Durbar to a refund or set-off of income-tax deemed paid on dividends. Issue-wise Detailed Analysis: 1. Assessability of Interest Received by the Durbar on a Loan: The first issue was whether the interest of Rs. 2,59,726 received by the Durbar on a loan advanced to Provident Investment Co. Ltd. was assessable under the Indian Income-tax Act read with the Government Trading Taxation Act (III of 1926). The court held that the income was taxable. The interest was deemed to have accrued in British India under Section 42(1) of the Indian Income-tax Act, as the money lent was brought into British India. The court rejected the contention that the income did not accrue in British India and held that the provisions of the Government Trading Taxation Act applied, making the Durbar liable to tax in the same manner as a company. 2. Assessability of Managing Agency Commission Received by the Durbar: The second issue was whether the sum of Rs. 3,57,112 received by the Durbar from the managing agency commission paid by Tata Iron & Steel Co. Ltd. to Tata Sons Ltd. was assessable under the relevant Acts. The court found that the commission was received as part of the money-lending operations of the Durbar. The commission was linked to the loan advanced by the Durbar to Tata Iron & Steel Co. Ltd. and was therefore taxable as income arising from the Durbar's business activities. 3. Assessability of Income Derived from Properties Purchased in Execution Sales: The third issue concerned the income derived from properties situated in British India, purchased by the Durbar at execution sales. The court held that the income from these properties was not part of the money-lending business of the Durbar. The properties were acquired in satisfaction of debts and were not used in the money-lending operations. Therefore, the income from these properties was not assessable under the Indian Income-tax Act read with the Government Trading Taxation Act. 4. Taxability of Dividends Received from Sir Shapurji Bharucha Mills Ltd.: The fourth issue was whether the dividend of Rs. 1,88,030 received by the Durbar from Sir Shapurji Bharucha Mills Ltd. was taxable. The court held that the shares and debentures continued to be trading assets of the Durbar. The dividends were therefore considered income arising from the Durbar's business operations and were taxable under the relevant Acts. 5. Taxability of Dividends Received from C.P. Cement Co. Ltd.: The fifth issue was similar to the fourth, concerning the dividend of Rs. 83,447 received from C.P. Cement Co. Ltd. The court held that these dividends were also taxable as they were derived from trading assets of the Durbar, thus falling under the purview of the Indian Income-tax Act read with the Government Trading Taxation Act. 6. Entitlement of the Durbar to a Refund or Set-off of Income-tax Deemed Paid on Dividends: The sixth issue was whether the Durbar was entitled to a refund or set-off under Section 48(1) or Section 18(5) of the Income-tax Act. The court held that the Durbar, as a State entity, did not fall within the categories of persons entitled to such refunds under Section 48. The Durbar was not considered an individual, company, or association of persons for the purposes of the Income-tax Act, and therefore was not entitled to a refund or set-off. Conclusion: The appeal was allowed in part concerning issue 3, with the court holding that the income from properties purchased in execution sales was not assessable. However, the appeal was dismissed on all other issues, with the court affirming the taxability of the interest, managing agency commission, and dividends received by the Durbar, and denying the Durbar's entitlement to a refund or set-off of income-tax deemed paid on dividends. The case was remitted to the High Court of Bombay for necessary substitution in its judgment and decree. The appellant was ordered to pay three-fourths of the costs of the appeal to the respondent.
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