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Issues Involved:
1. Whether there was any evidence to justify the finding that profits and gains accrued to the Hong Kong Trust Corporation through its business connection with the Bombay Trust Corporation for the year 1927. 2. The jurisdiction and actions of the Commissioner of Income-tax following the High Court's decision. 3. The appropriateness of the High Court's order under the Specific Relief Act directing the Commissioner to refund the tax. Issue-Wise Detailed Analysis: 1. Evidence of Profits and Gains: The main issue was whether there was any evidence to justify the finding that for the year 1927, profits and gains accrued to the Hong Kong Trust Corporation (Hong Kong Company) through its business connection with the Bombay Trust Corporation (Bombay Company). The Income-tax Authorities claimed that the Hong Kong Company was liable to income tax through its business connection with the Bombay Company, under sections 42(1) and 43 of the Indian Income Tax Act, 1922. The High Court had previously answered this question in the negative, stating that there was no evidence to support the claim that the Hong Kong Company received interest from the Bombay Company in 1927. The evidence primarily consisted of entries in the books of the Bombay Company, which showed that until November 1926, the Bombay Company borrowed money from the Hong Kong Company. However, in October 1926, the Bombay Company received a notice from the Income-tax Authorities and subsequently converted its fixed deposits into call loans, repaying the Hong Kong Company in November 1926. The books and declarations from relevant parties, including the Hong Kong Company and E.D. Sassoon & Company, indicated that there were no transactions between the Hong Kong Company and the Bombay Company in 1927. The High Court concluded that there was no evidence to show that in 1927 the loan from the Hong Kong Company continued or that interest accrued to the Hong Kong Company. The court emphasized that the Income-tax Authorities could not insist on treating entries showing a tael loan from a Shanghai company as evidence of a loan from the Hong Kong Company without any supporting evidence. 2. Jurisdiction and Actions of the Commissioner: Following the High Court's decision, the Commissioner of Income-tax directed further enquiry and a fresh assessment. The Commissioner believed that the High Court's decision did not terminate the proceedings and that further enquiry was justified. However, the High Court criticized this approach, stating that the Commissioner had no jurisdiction to direct further enquiry or to impose conditions on the refund of the tax paid. The High Court ordered the Commissioner to set aside the original assessment and refund the tax with interest. The court found that the Commissioner's actions, including requiring a guarantee from E.D. Sassoon & Company for the refund, were unjustified and a flagrant attempt to flout the court's judgment. 3. High Court's Order under the Specific Relief Act: The High Court's order under the Specific Relief Act directed the Commissioner to refund the tax paid by the Bombay Company. The court found that the Commissioner's actions were an attempt to ignore the High Court's decision and that the Commissioner had no jurisdiction to continue the proceedings or impose conditions on the refund. However, the Privy Council found that the High Court's order was incorrect. The Privy Council stated that the decision of the High Court on the question referred to it was advisory and that the Commissioner had the jurisdiction to direct further enquiry. The Privy Council also noted that the High Court's order should have specified the exact act the Commissioner was commanded to do and that the High Court was not justified in ordering a refund while a fresh assessment stood. Conclusion: The Privy Council concluded that the High Court's order should be set aside and that the Commissioner of Income-tax had the jurisdiction to direct further enquiry. The appeal was dismissed, and the Commissioner was ordered to pay two-thirds of the costs to the Bombay Trust Corporation.
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