1933 (12) TMI 29 - HC - Income Tax

Summary

Issues:
Interpretation of the Government Trading Taxation Act of 1926, Liability of the State to pay income tax on profits earned in 1925-26, Refund of tax paid by the State, Binding nature of High Court judgment on the parties involved.

Interpretation of the Government Trading Taxation Act of 1926:
The case involved the interpretation of the Government Trading Taxation Act of 1926, specifically Section 2, which imposed taxation on the Government of any part of His Majesty's Dominions for trade or business conducted in British India. The Act came into force on April 1, 1926, and was applicable to the Tehri-Garhwal State's timber business profits earned between April 1925 and March 1926.

Liability of the State to pay income tax on profits earned in 1925-26:
The main issue revolved around whether the State was liable to pay income tax and super-tax on the profits earned in 1925-26. The High Court held that the State was liable to pay tax on the income of 1926-27, calculated based on the profits earned in the previous year. The Court rejected the State's argument that the Act was not applicable to it and confirmed its liability to taxation.

Refund of tax paid by the State:
Following the initial judgment, a part payment of &8377; 25,000 was made by the State, leaving a balance of &8377; 18,294-14-0 due. The State sought a refund of the &8377; 25,000, claiming it had no taxable income in 1926-27. The High Court ruled in favor of the State, holding that it was entitled to the refund and not liable to pay the balance.

Binding nature of High Court judgment on the parties involved:
The Commissioner appealed to the Privy Council, arguing that the High Court had misconstrued Section 3 of the Income Tax Act of 1922. However, the Privy Council held that the former judgment of the High Court, which was not appealed against, governed the relations of the parties in the case. The Privy Council emphasized that the judgment was binding between the parties, and if it expounded a wrong construction of the Act, an appeal against it was the correct procedure for correction.

In conclusion, the Privy Council dismissed the appeal, affirming the High Court's decision to refund the &8377; 25,000 to the State and relieve it from the demand for payment of the balance. The Privy Council advised His Majesty accordingly, upholding the binding nature of the High Court judgment in the specific case.