1950 (7) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Levy of Income-tax
2. Levy of Excess Profits Tax
3. Application of Section 42(3) of the Income-tax Act
4. Appointment of Statutory Agents under Section 43 of the Income-tax Act

Issue-wise Detailed Analysis:

1. Levy of Income-tax:
The court examined whether the amount realized by Turner Morrison & Company Limited (TM&Co) by the sale of salt consigned to them by the assessee company constitutes income, profits, or gains received in India on behalf of the assessee company. The court held that the sale proceeds were received in India by TM&Co on behalf of the assessee company, as TM&Co sold the salt in India, received the proceeds, and deposited them in their own bank in India. The court rejected the argument that the proceeds were gross receipts and not income until received in Egypt, citing the decision of the Privy Council in Probhat Chandra Barua v. The King Emperor [1930] 57 IA 228. The court concluded that the gross receipts included total income and were received in India on behalf of the assessee company, making them liable to be assessed with income-tax under Sections 3, 4(1)(a), 6, and 10 of the Income-tax Act.

2. Levy of Excess Profits Tax:
The court noted that excess profits tax could only be imposed on income, profits, or gains that arise or accrue or are deemed to arise or accrue in India, as per Sections 4 and 5 of the Excess Profits Tax Act. The court disagreed with the Tribunal's view that the income, profits, or gains actually accrued or arose in India and thus were assessable to excess profits tax. The court held that the income should be deemed to arise or accrue in India under Section 42(1) of the Income-tax Act, as the income arose from a business connection in India. The court further stated that since all the operations of the business were not carried out in India, the provisions of Section 42(3) of the Income-tax Act applied, allowing the assessee company to claim that excess profits tax should be levied only on such income, profits, and gains as are reasonably attributable to the operations carried out in India.

3. Application of Section 42(3) of the Income-tax Act:
The court examined whether Section 42(3) of the Income-tax Act, which allows for the taxation of only that part of the profits attributable to operations carried out in India, applied to the case. The court held that Section 42(3) applied to the levy of excess profits tax, as the income was deemed to arise or accrue in India under Section 42(1) and all the operations of the business were not carried out in India. The court concluded that the assessee company was entitled to the benefit of Section 42(3) and could claim that excess profits tax should be levied only on the profits attributable to the operations carried out in India.

4. Appointment of Statutory Agents under Section 43 of the Income-tax Act:
The court considered the argument that the appointment of TM&Co as statutory agents under Section 43 of the Income-tax Act attracted the provisions of Section 42, and therefore, Section 42(3) should apply. The court rejected this argument, stating that the appointment of statutory agents under Section 43 did not necessarily involve the application of Section 42. The court held that TM&Co, as statutory agents, could be assessed with income-tax under Section 40 of the Income-tax Act without invoking Section 42. The court concluded that the provisions of Section 42(3) did not apply to the assessment of income-tax on the statutory agents.

Judgment:
The court answered the questions as follows:
1. The first question was answered in the affirmative for income-tax but not for excess profits tax.
2. The second question was answered negatively, with the court finding that the income should be deemed to have arisen or accrued in India for excess profits tax purposes, and Section 42(3) applied.
3. The third question was answered in the affirmative for income-tax, with Section 42 not applying to the levy of income-tax on the facts of the case.

The court held that income-tax was properly levied on the income received by TM&Co in India on behalf of the assessee company, and excess profits tax should be levied only on the profits attributable to the operations carried out in India. Both parties were ordered to bear their own costs of the reference.