1952 (11) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and validity of the reference to the High Court of Mysore.
2. Timeliness and competence of the reference filed by the Commissioner of Income Tax.
3. Double taxation and the legal implications of tax assessments by different authorities.
4. Merits of the assessment and the applicability of the Indian Income Tax Act to the income derived by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Reference:
The reference was initially made by the Income Tax Appellate Tribunal, Bombay, under Section 66(1) of the Indian Income Tax Act of 1922 to the High Court of Judicature at Madras. However, due to the retrocession of the Civil and Military (C. & M.) Station, Bangalore, to the Government of Mysore, the Madras High Court returned the records, stating it no longer had jurisdiction. The matter was subsequently re-filed in the High Court of Mysore. It was determined that under Section 5(c) of Act 31 of 1948 and Section 4 of Act 23 of 1947, the High Court of Mysore had the jurisdiction to continue proceedings that were pending before the Madras High Court prior to the retrocession.

2. Timeliness and Competence of the Reference:
The assessee's counsel raised objections regarding the delay in refiling the reference, arguing it was nearly two years late. However, the court noted that the present petition was not a fresh reference but a continuation of the original one. Therefore, the 60-day limitation period for making an application to the Appellate Tribunal did not apply. The court found no substance in the objection, citing provisions from the Retrocession (Application of Laws) Act, 1947, and the Retrocession (Transitional Provisions) Act, 1947, which allowed for the continuation of such proceedings in the High Court of Mysore.

3. Double Taxation and Legal Implications:
The assessee's counsel argued that the income had already been assessed and taxed by the Mysore Income Tax authorities under the Mysore Income Tax Act, and any further taxation by the Indian Income Tax authorities would lead to double taxation. The court acknowledged the force of this objection, noting that once the Government of Mysore had accepted and settled the tax claim, it could not, through an agent (the Commissioner of Income Tax), seek to collect additional tax. The court likened this to a creditor who, having accepted a settlement, cannot later revoke it and demand more payment.

4. Merits of the Assessment:
On the merits, the court agreed with the Appellate Tribunal and the Appellate Assistant Commissioner that the income derived from the contracts was not taxable under the Indian Income Tax Act as applied to the C. & M. Station, Bangalore. The respondent firm's office and business operations were entirely within Mysore State, and the construction work was performed in Jalahalli, also within Mysore State. The mere acceptance of the contract in the C. & M. Station and the issuance of cheques from there did not constitute a business connection or income accrual in British India. The court referenced the case of 'Commissioner of Income Tax, Bombay Presidency and Aden v. Chunilal B. Mehta' to support this view, emphasizing that the place of contract formation did not determine the tax liability if the business operations were conducted entirely outside British India.

Conclusion:
The court concluded that the Tribunal was correct in holding that the income assessed by the Income Tax Officer was not taxable under the Indian Income Tax Act as applied to the C. & M. Station, Bangalore. The peculiar circumstances of the case warranted that each party bear its own costs. The answer to the reference question was in favor of the assessee, confirming the non-taxability of the income in question.