1925 (9) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Liability of profits on rice, timber, and cotton/produce sold in London to Indian income-tax.
2. Liability of profits on insurance in London to Indian income-tax.
3. Liability of London commission on Indo-Burma Petroleum Company to Indian income-tax.
4. Liability of sales commission on Attock Oil Company to Indian income-tax.
5. Liability of London commission on stores shipped to Indian income-tax.

Issue-wise Detailed Analysis:

I. Liability of Profits on Rice, Timber, and Cotton/Produce Sold in London to Indian Income-tax:

The court examined whether the profits on rice, timber, and cotton/produce sold in London are liable to Indian income-tax. The assessment was made under S. 4(1) read with S. 42(1) of the Indian Income-tax Act, 1922. The court noted that the firm carried on business within the province through various mills and thus any income, profits, or gains arising from such business are chargeable under Ss. 4(1) and 6 of the Act of 1922.

The court referenced the case of Commissioners of Taxation v. Kirk [1900] A.C. 588, where it was held that income is the money resulting from all necessary stages, including extraction, conversion, sale, and receipt of money. Applying this to the present case, the court held that the fact of the produce being sold in London and the money being received there does not prevent profits or gains accruing or arising in British India from being taxable under the Indian Income-tax Act.

The court also addressed the practical question of whether all net profits are liable to Indian income-tax. It was decided that a reasonable commission agent's commission should be deducted before arriving at the net profits earned. Therefore, only the profits after deducting such commission are assessable to Indian income-tax.

II. Liability of Profits on Insurance in London to Indian Income-tax:

The court examined whether the profits on insurance in London are liable to Indian income-tax. The profits arose on contracts of insurance entered into by the Head Office on rice cargoes consigned by its Rangoon branch. The court held that the profits were not merely earned in England but the contract was entered into in England. The connection to Burma was considered too remote to justify holding that the profits could be deemed to arise or accrue in British India. Thus, these profits are not liable to Indian income-tax.

III. Liability of London Commission on Indo-Burma Petroleum Company to Indian Income-tax:

The court examined the liability of the London commission on the Indo-Burma Petroleum Company to Indian income-tax. The item was split into two categories: commission earned by the Oil Department, London, on sales of wax, etc., in the United Kingdom, and commission earned by Steels Export Department in London on stores purchased and shipped to Burma.

For the commission earned on sales of wax, the court held that a reasonable commission agent's commission should be deducted before arriving at the net profits earned. For the commission on stores, the court held that since the profits were earned in England and the contract was entered into in England, they are not liable to Indian income-tax.

IV. Liability of Sales Commission on Attock Oil Company to Indian Income-tax:

The court examined the liability of the sales commission on the Attock Oil Company to Indian income-tax. The item included an allowance to cover administration expenses as Managing Agents and commissions earned on insurance and stores.

The court held that the commissions earned on insurance and stores are not liable to Indian income-tax as they were earned in England. However, the allowance to cover administration expenses as Managing Agents was considered assessable to Indian income-tax to the extent that it represents profits on management in British India.

V. Liability of London Commission on Stores Shipped to Indian Income-tax:

The court examined the liability of the London commission on stores shipped to Indian income-tax. It was noted that the reference did not specify what part of the item arises from commission on stores not for sale and what part arises from goods for sale. The court held that the Head Office in London is entitled to charge a reasonable commission on all goods shipped to their branch in Burma. Unless the commission charged is unreasonable, it is not assessable to income tax in Burma.

Conclusion:

The court concluded that while some of the profits and commissions are liable to Indian income-tax, others are not, depending on where the profits were earned and the nature of the business connection. The court also emphasized the need for a reasonable commission agent's commission to be deducted before arriving at the net profits assessable to Indian income-tax.