1937 (2) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the commission earned by the assessee in British India but received in the United Kingdom can be held to have accrued or arisen in British India under Section 4(1) of the Indian Income Tax Act, 1922.

Issue-wise Detailed Analysis:

1. Accrual of Income:
The primary issue was whether the commission earned by the assessee in British India but received in the United Kingdom could be considered as having accrued or arisen in British India under Section 4(1) of the Indian Income Tax Act, 1922. The assessee was employed by a company incorporated under the English Companies Act, and his remuneration included a monthly salary, pony allowance, and a commission based on the net profits of specific divisions of the company. The commission in question was earned during the accounting period 1933-34 but was received by the assessee while he was on leave in the United Kingdom in 1934.

The court examined the terms of the employment agreement, which specified that the assessee was to serve the company in India and that his commission was based on the profits earned by the company's operations in India. The Commissioner of Income Tax argued that the commission was earned in British India and thus accrued or arose there, regardless of where it was received.

2. Interpretation of "Accrue" and "Arise":
The court considered the interpretation of the terms "accrue" and "arise" as used in Section 4(1) of the Act. It was argued that these terms should not be synonymous with "received" and should denote something different. The court referred to previous judgments, including the case of Rogers Pratt Shellac & Co. v. Secretary of State for India in Council, where it was held that "accrue" and "arise" indicate a right to receive income and represent a stage before the income becomes receivable.

3. Place of Origin of Income:
The court emphasized that the place where the income is earned is crucial in determining whether it accrues or arises in British India. The Bombay High Court's decision in The Commissioner of Income-tax, Bombay v. Raja Bahadur Banilal Motilal was cited, where it was held that the words "accruing or arising" are used with reference to the place from which the income is derived. The court agreed with this interpretation, concluding that the commission earned by the assessee in British India accrued or arose there, even though it was received in the United Kingdom.

4. Practical Considerations and Common Sense:
The court stressed the importance of common sense and practical considerations in interpreting the terms "accrue" and "arise." It was noted that the assessee's right to receive the commission was wholly dependent on the work done and services rendered in British India. Therefore, it was logical to conclude that the income accrued or arose in British India.

Conclusion:
The court answered the question in the affirmative, holding that the commission earned by the assessee in British India but received in the United Kingdom did accrue or arise in British India within the meaning of Section 4(1) of the Indian Income Tax Act, 1922. The decision was based on the interpretation of the terms "accrue" and "arise," the place of origin of the income, and practical considerations.

Separate Judgment:
Panckridge, J. concurred with the judgment, adding that the words "accruing and arising" are very wide and mean something different from "being received." He emphasized that the commission payable was paid out of the profits of the Indian tea estates and was a fixed percentage of such profits, distinguishing the case from other precedents. Panckridge, J. also noted that the question propounded by the Commissioner did not touch on whether a proportionate part of the income was not liable to tax as leave salary paid in the United Kingdom.