1960 (12) TMI 94 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under section 25(3) of the Income-tax Act for foreign businesses.
2. Entitlement to relief under section 25(3) for rental income from house properties owned by the foreign firm.
3. Taxability of amounts recovered under the Malayan Debtor and Creditor Ordinance in the assessment year 1952-53.

Detailed Analysis:

Issue 1: Entitlement to Relief Under Section 25(3) for Foreign Businesses
The primary question was whether the assessee is entitled to both parts of the relief under section 25(3) of the Income-tax Act for its foreign businesses in Penang, Ipoh, and Kambar. The court examined whether the foreign business was ever charged under the Indian Income-tax Act, 1918. It was established that the assessee was taxed on remittances received from foreign business profits under the 1918 Act. However, the court emphasized that the tax was on the remittance and not on the business income itself. The court referenced the decision in Commissioner of Income-tax v. S.V.R.M. Palaniappa Chettiar, which held that relief under section 25(4) (similar to section 25(3)) is only permissible if the business itself was charged to tax under the 1918 Act, not merely the remittances. Consequently, the court concluded that the assessee's foreign business was not charged under the 1918 Act, and thus, the assessee was not entitled to relief under section 25(3). The court answered this question in favor of the department and against the assessee.

Issue 2: Entitlement to Relief Under Section 25(3) for Rental Income from House Properties
The second issue was whether the assessee is entitled to relief under section 25(3) concerning rental income from house properties owned by the foreign firm. The court noted that income from house property is charged under section 9 of the Act, which is a separate head of charge distinct from business income under section 10. The court reiterated that section 25(3) deals only with business, profession, or vocation, and property income cannot be categorized as business income. Therefore, the Tribunal was correct in excluding the property income from the relief under section 25(3). The court upheld the Tribunal's decision on this point.

Issue 3: Taxability of Amounts Recovered Under the Malayan Debtor and Creditor Ordinance
The third issue was whether the amount of $32,097 recovered under the Malayan Debtor and Creditor Ordinance was assessable in the year 1952-53. The Tribunal had followed the decision in M.L.M. Muthiah Chettiar v. Commissioner of Income-tax, which provided a formula for giving relief to the assessee. The court found that the Tribunal's formula was consistent with the established decision and thus answered this question against the department and in favor of the assessee.

Conclusion
The court ruled that the assessee was not entitled to relief under section 25(3) for its foreign businesses, as the foreign business was not charged under the 1918 Act. The assessee was also not entitled to relief under section 25(3) for rental income from house properties, as such income falls under a separate head of charge. However, the amounts recovered under the Malayan Debtor and Creditor Ordinance were not assessable in the year 1952-53, following the precedent set in M.L.M. Muthiah Chettiar's case.