1966 (10) TMI 34 - SC - Income Tax

Whether the assessee is entitled to both parts of the relief contemplated under section 25(3) of the 1922 Act in respect of the foreign business at Penang, Ipoh and Kambar? Whether the assessee was entitled to relief under section 25(3) of the 1922 Act with regard to the rental income from house properties owned by the foreign firm which was discontinued in the year of account? Held that - The High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act. The first question must, therefore, be answered in favour of the assessee and it must be held that the assessee is entitled to both parts of the relief contemplated under section 25(3) of the 1922 Act in respect of the foreign businesses at Penang, Ipoh and Kambar. The assessee is entitled to relief under section 25(3) of the 1922 Act with regard to the rental income from the house properties owned by the foreign firm which was discontinued in the year of account. Appeal allowed.

Summary

Issues Involved:
1. Entitlement to relief under section 25(3) of the 1922 Act for foreign business income.
2. Entitlement to relief under section 25(3) of the 1922 Act for rental income from house properties owned by the foreign firm.

Detailed Analysis:

Issue 1: Entitlement to Relief under Section 25(3) of the 1922 Act for Foreign Business Income
The primary issue was whether the assessee was entitled to relief under section 25(3) of the 1922 Act for the foreign business income at Penang, Ipoh, and Kambar. The controversy centered on whether the foreign business was ever charged under the 1918 Act. The Appellate Tribunal found that the assessee was taxed on remittances received from the profits of the foreign business. The Appellate Assistant Commissioner noted that the entire profits of the foreign business were assessed under the 1918 Act because they were remitted into British India, not because it was business income per se.

Section 3 of the 1918 Act, the charging section, applied to all income received in British India. The court held that the foreign business of the assessee was charged under the 1918 Act because the entire income was remitted and taxed in British India. Thus, the foreign business income was considered charged under the 1918 Act within the meaning of section 25(3) of the 1922 Act.

The High Court's view, which followed its previous decision in Commissioner of Income-tax v. S. V. R. M. Palaniappa Chettiar, was that the foreign business was not charged under the 1918 Act because only the remittances were taxed. This view was implicitly overruled by the Supreme Court's decision in Commissioner of Income-tax v. Chugandas & Co., which held that tax charged on the owner of a business under the 1918 Act suffices for relief under section 25(3). Therefore, the Supreme Court concluded that the assessee was entitled to both parts of the relief under section 25(3) for the foreign businesses at Penang, Ipoh, and Kambar.

Issue 2: Entitlement to Relief under Section 25(3) of the 1922 Act for Rental Income from House Properties
The second issue was whether the assessee was entitled to relief under section 25(3) for rental income from house properties owned by the foreign firm, which was discontinued in the year of account. This issue was analogous to the one in Commissioner of Income-tax v. Chugandas & Co., where it was held that interest on securities formed part of the business income for the purpose of exemption under section 25(3). The Supreme Court reiterated that the exemption under section 25(3) is general and not restricted to income under the head "profits and gains of business, profession or vocation."

The court explained that the heads of income in section 6 of the 1922 Act are merely for classification and computation purposes. Business income, even when broken up under different heads, remains business income. Therefore, the assessee was entitled to relief under section 25(3) for the rental income from house properties owned by the foreign firm.

Conclusion:
The Supreme Court set aside the judgment of the Madras High Court and allowed the appeal with costs. The assessee was entitled to relief under section 25(3) of the 1922 Act for both the foreign business income and the rental income from house properties.