1943 (7) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Validity of Section 4-A(c) of the Indian Income-tax Act, 1922.
2. Taxability of the assessee-company for the assessment year 1939-40.
3. Applicability of sub-clause (b) of Clause (c) of Section 4-A for the assessment year 1939-40.
4. Jurisdiction of the Additional Income-tax Officer under Section 64(1) or Section 64(2).

Issue-wise Detailed Analysis:

1. Validity of Section 4-A(c) of the Indian Income-tax Act, 1922:
The primary issue was whether Section 4-A(c) of the Indian Income-tax Act, 1922, introduced by the amending Act of 1939, was ultra vires. This section states that a company is resident in British India if its income arising in British India exceeds its income arising without British India. The court noted that the Indian Legislature, while not sovereign, has wide legislative powers under the Government of India Act, 1935. The court rejected the argument that the provision was ultra vires due to its extra-territorial effect, stating that the Indian Legislature has the power to impose income tax and determine residency for tax purposes. The court concluded that Section 4-A(c) is valid, as it is within the legislative powers conferred by the Government of India Act.

2. Taxability of the Assessee-Company for the Assessment Year 1939-40:
The court addressed whether the assessee-company was taxable for the income that accrued outside British India in the assessment year 1939-40. The Income-tax Appellate Tribunal found that the assessee, a UK-incorporated company, had significant income arising in British India, exceeding its foreign income. The court affirmed that the assessee-company was taxable under the provisions of Section 4-A(c), as its income from British India exceeded its foreign income, making it a resident for tax purposes in British India.

3. Applicability of Sub-Clause (b) of Clause (c) of Section 4-A for the Assessment Year 1939-40:
The court examined whether the amended Section 4-A(c) applied to the assessment year 1939-40. The Tribunal argued that there was no retrospective effect, as the amended Act required income of the previous year to be assessed under the new provisions for the current year's assessment. The court agreed, stating that the relevant year for determining residency was the previous year, and thus, the sub-clause was applicable. The court dismissed the argument that there was no finding of residency in the year of assessment, affirming that the previous year's income was sufficient for the assessment.

4. Jurisdiction of the Additional Income-tax Officer under Section 64(1) or Section 64(2):
The court addressed whether the Additional Income-tax Officer had jurisdiction to make the assessment under Section 64(1) or Section 64(2). Section 64(1) mandates that the assessment be made by the Income-tax Officer of the area where the assessee's place of business is located. Since the assessee was a partner in a firm carrying on business in Bombay, the court concluded that the assessment by the Income-tax Officer for that area was valid under Section 64(1). The question of jurisdiction under Section 64(2) was deemed unnecessary to address.

Conclusion:
The court answered all the questions in favor of the Commissioner, affirming the validity of Section 4-A(c) and the taxability of the assessee-company for the assessment year 1939-40. The court also confirmed the applicability of the amended section and the jurisdiction of the Additional Income-tax Officer under Section 64(1). The assessee was ordered to pay the Commissioner's costs.