1924 (5) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and applicability of Indian Income Tax Acts to non-resident companies.
2. Interpretation of "business connection" under Section 33(1) of Act XI of 1922 and Section 51 of Act VII of 1918.
3. Distinction between charging and machinery sections.
4. Assessment of income from manufacturing activities within British India.

Detailed Analysis:

1. Jurisdiction and Applicability of Indian Income Tax Acts to Non-Resident Companies:
The case revolves around the applicability of Indian Income Tax Acts to a non-resident company, Rogers Pratt Shellac Company, which is incorporated in the USA but has a branch office in Calcutta. The company was assessed for income tax for the years 1921-22 and 1922-23. The primary issue is whether the income generated by the company, which does not accrue, arise, or is received in British India, can be taxed under the Indian Income Tax Acts.

2. Interpretation of "Business Connection" under Section 33(1) of Act XI of 1922 and Section 51 of Act VII of 1918:
The court examined Section 33(1) of Act XI of 1922 and Section 51 of Act VII of 1918, which state that income accruing or arising to a person residing out of British India through any business connection in British India shall be deemed to be income accruing or arising within British India. The Government contended that this provision enlarges the charging section, making the income taxable. The company argued that Section 33(1) is merely a machinery section meant to lay down the mode of levying tax on non-residents through their agents.

3. Distinction Between Charging and Machinery Sections:
The court analyzed whether Section 33(1) is a charging section or merely a machinery section. It was observed that Sections 3 and 5 of the Acts enumerate the classes of income chargeable to income tax, while Chapter IV, which includes Section 33(1), deals with liability in special cases. The court concluded that Section 33(1), by deeming certain incomes to accrue or arise in British India, extends the scope of taxable income beyond what is recognized in England, thus making it a charging provision.

4. Assessment of Income from Manufacturing Activities within British India:
The court also considered the income from the company's manufacturing branch at Wyndhamgunj, which clearly falls within the Act. Under Section 2, Clause (3) of Act VII of 1918, "business" includes manufacturing activities, making the income from such activities taxable under Sections 3 and 5 of the Act.

Conclusion:
The court held that the company is liable to pay income tax under the provisions of Section 33(1) read with Sections 3 and 5 of Act VII of 1918 and Section 42(1) read with Sections 4 and 6 of Act XI of 1922. The income derived from the manufacturing branch at Wyndhamgunj is also taxable. The court made no order as to costs.