1965 (12) TMI 42 - SC - Income Tax

Whether the business in Hong Kong was controlled from India during the accounting year for 8 months only and, therefore, proportionate profits attributable to the rest of the year were not exigible to tax? Whether the loss suffered by the assessee in his business in Hong Kong during the period 1941 to 1945 was ascertained only after the termination of the Second World War in 1946 and, therefore, the loss must be deemed to have been incurred by the assessee only during the accounting year? Held that - It will be noticed at once that the question does not relate to the losses incurred in the year 1946, but only those incurred in the year 1941. The question ex facie does not comprehend the losses incurred in 1946 or ascertained during that year. The High Court, therefore, rightly held that the question framed by it was confined to the losses of the year 1941. But on an assumption not warranted by the question, the learned judges of the High Court, in deference to the arguments advanced by the counsel appearing before them, proceeded to consider the argument now raised before us and came to the conclusion that the said losses could not be held to have been sustained in the year 1946. In our view, it was not open to the High Court to answer the question not referred to it by the Tribunal. The Tribunal s order also shows that no such contention was raised before it ; nor did the Tribunal deal with it. Appeal dismissed.

Summary

Issues:
1. Taxability of income from Hong Kong business.
2. Claim for setting off losses against income.

Analysis:
1. The case involved the taxability of income from a business in Hong Kong controlled from India. The appellant argued that only the proportionate profits attributable to the period of control from India should be taxed. However, both the Tribunal and the High Court found that the business was controlled from India throughout the accounting year. The High Court emphasized that temporary absence of the proprietor does not shift control, and there was no conclusive evidence to the contrary. Therefore, the income was held to be fully taxable. The proviso under section 4 of the Indian Income-tax Act was discussed, highlighting the condition that income accrued outside India can only be taxed if derived from a business controlled in India.

2. The appellant also claimed to set off losses incurred in the Hong Kong business in 1941 against the income of the assessment year. The High Court limited its consideration to the losses of 1941, as per the question referred. The appellant attempted to argue for losses incurred in 1946, but the High Court rightly held that such argument was beyond the scope of the question referred. The Supreme Court emphasized that the High Court cannot answer a question not referred to it by the Tribunal. The Court noted that the Tribunal did not address the 1946 losses, and therefore, the appellant could not raise a new question at the Supreme Court level. Ultimately, the Court dismissed the appeal, upholding the decisions of the Tribunal and the High Court.

Overall, the Supreme Court upheld the taxability of the income from the Hong Kong business controlled from India and rejected the claim for setting off losses against the income, emphasizing the importance of sticking to the questions referred for consideration at each level of the legal process.