1993 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of clause (x) of rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964.
2. Whether the interest received from the Indian branches of foreign banks can be excluded from the computation of chargeable profits under the Surtax Act.
3. Definition and scope of the term "Indian concern."

Issue-wise Detailed Analysis:

1. Interpretation of Clause (x) of Rule 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964:

The primary issue revolves around the interpretation of clause (x) of rule 1. The clause states that in computing the chargeable profits of a non-resident company which has not made the prescribed arrangements for the declaration and payment of dividends within India, its income by way of any interest or fees for rendering technical services received from Government, a local authority, or any Indian concern is to be excluded from its total income.

The assessee argued that the condition regarding the source of receipt applies only to "fees for rendering technical services" and not to "interest." The Revenue contended that the condition applies to both "interest" and "fees."

The court held that the condition regarding the source of receipt applies to both "interest" and "fees." The expression "any" preceding the word "interest" is common to both "interest" and "fees." Thus, the qualifying phrase applies equally to both types of receipts. The court concluded that interest received from a Government, local authority, or any Indian concern only can be excluded under clause (x) of rule 1.

2. Whether the Interest Received from the Indian Branches of Foreign Banks Can Be Excluded from the Computation of Chargeable Profits:

The assessee received interest from the Indian branches of two foreign banks and claimed exclusion of these amounts in the computation of its chargeable profits under the Surtax Act. The Inspecting Assistant Commissioner and the Commissioner of Income-tax (Appeals) rejected this claim. However, the Income-tax Appellate Tribunal decided in favor of the assessee, leading to this reference at the instance of the Revenue.

The court examined whether the interest received from the Indian branches of foreign banks falls within the scope of clause (x) of rule 1. The court concluded that the interest received from the branches of foreign banks located in India cannot be deducted under clause (x) of rule 1.

3. Definition and Scope of the Term "Indian Concern":

The court needed to determine whether the branches of foreign banks situated in India could be considered "Indian concerns." The court referred to a recent decision in Income-tax Reference No. 98 of 1983, where it was held that the word "concern" is a word of wide import and includes all organizations or establishments engaged in business or profession, irrespective of ownership.

However, the court emphasized that the term "Indian concern" means a concern that is Indian in character. A concern that is not Indian cannot be termed an "Indian concern" merely by its location in India. The court cited the decision of the Madras High Court in CIT v. Craigmore Land and Produce Co. Ltd., which held that the branches of a foreign concern situated in India cannot be considered "Indian concerns."

The court concluded that the interest received by the assessee from the branches of the two foreign banks located in India cannot be excluded under clause (x) of rule 1 of the First Schedule to the Surtax Act.

Conclusion:

The court answered the question in the negative, i.e., in favor of the Revenue, stating that the interest received by the assessee from the Indian branches of foreign banks could not be excluded in computing the chargeable profits for the purpose of surtax under clause (x) of rule 1 of the First Schedule. The court also addressed the contention of the assessee regarding the interpretation of the expression "Indian concern" and held that the High Court could consider all aspects of the question referred, even if not decided by the Tribunal. The reference was answered in favor of the Revenue, with no order as to costs.