1948 (8) TMI 28 - HC - Income Tax

Summary

Issues:
1. Applicability of Section 42(3) of the Indian Income-tax Act to profits on the sale of gold by a non-resident Hindu undivided family in British India.

Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal regarding the applicability of Section 42(3) of the Indian Income-tax Act to profits on the sale of gold by a non-resident Hindu undivided family in British India. The assessee, a non-resident, conducted business in gold and silver in Secunderabad outside British India, selling a major portion in Bombay through brokers. The contention was that the profits did not accrue in British India as the source of business and activities were in Hyderabad. The Income-tax Officer assessed the profits as accruing in British India due to sales in Bombay. The Appellate Assistant Commissioner and the Tribunal rejected the contentions raised by the assessee, who then focused on the applicability of Section 42(3). The Tribunal dismissed the appeal, leading to the reference. The Commissioner argued that the first contention regarding profits not accruing in British India was given up before the Tribunal, and the reference was solely on the applicability of Section 42(3).

The Court held that the assessee could not now argue that the profits did not accrue in British India as the argument throughout the proceedings had been on the basis that the profits did accrue in British India. The Court analyzed Section 4(1)(c), Section 42(1), and Section 42(3) of the Income-tax Act. Section 4(1)(c) deals with two categories of cases: profits accruing in British India to non-residents and profits deemed to accrue in British India. Section 42(1) deems income from various sources in British India to accrue in British India. Section 42(3) specifies that in cases where all business operations are not in British India, only profits attributable to operations in British India are taxable.

The Court rejected the argument that Section 42 merged profits directly accruing in British India into the category of deemed profits under Section 4(1)(c). It emphasized the distinction between residents and non-residents for taxation purposes, stating that only income accruing or arising in British India is taxable for non-residents. The Court cited precedents to support the interpretation that relief under Section 42(3) applies only to profits deemed to accrue in British India, not to profits actually accruing in British India. Consequently, the Court answered the reference question accordingly, affirming that the profits were taxable in British India under Section 42(3) due to operations carried out there.