1953 (1) TMI 3 - SC - Income Tax

Whether in the facts and circumstances of this case the Tribunal was right in holding that the income profits and gains derived from the sale of salt in British India are assessable to tax as income profits and gains received or deemed to be received under Section 4(1)(a) ? Whether in the facts and circumstances of this case the Tribunal was right in accepting the contention of the Department that the income accrued or arose or is deemed to accrue or arise in India and is assessable to tax as contemplated by Section 4(1)(c) ? Whether the Tribunal was right in the circumstances of this case in rejecting the contention of the assessee (applicant) that the income profits and gains are chargeable to tax from the sale of salt in British India under Section 42 only ? Held that - High Court correctly answered Question (1) in the affirmative so far as income-tax is concerned. Excess profits tax however cannot be levied on this basis. Question (2). The Tribunal was wrong in accepting the contention of the Department that the income accrued or arose in India. The Tribunal did not hold that the income is income which should be deemed to accrue or arise in India. The part of the question which states that the Tribunal did so is not in accordance with fact. We find that the income profits and gains must be deemed to have arisen or accrued in India so far as excess profits tax is concerned and that Section 42(3) of the Income-tax Act applies to the levy of excess profits tax by virtue of Section 21 of the Excess Profits Tax Act. Question (3). The Tribunal was right in rejecting the contention that the income profits and gains are chargeable to tax under Section 42 only. They are also chargeable to income-tax as falling within the purview of Section 4(1)(a) of the Income-tax Act as income received in India on behalf of the assessee company. In such a case Section 42 of the Income-tax Act would have no application. Appeal dismissed.

Issues Involved:
1. Whether the income from the sale of salt in British India is assessable to tax under Section 4(1)(a) of the Indian Income-tax Act.
2. Whether the income accrued or arose or is deemed to accrue or arise in India under Section 4(1)(c).
3. Whether the income is chargeable to tax under Section 42 of the Indian Income-tax Act.

Detailed Analysis:

Issue 1: Assessability of Income under Section 4(1)(a)
The primary contention was whether the income derived from the sale of salt in British India by Turner Morrison & Company Ltd. (the Agents) on behalf of the Port Said Salt Association Ltd. (the Association) is assessable under Section 4(1)(a). The High Court affirmed that the income, profits, and gains from the sale of salt in British India are assessable to tax as income received or deemed to be received in India under Section 4(1)(a). The Supreme Court upheld this view, rejecting the argument that the Agents were merely "an animated Post Office." The Court emphasized that the Agents performed significant duties beyond mere transmission of funds, including selling goods, handling cargo, issuing delivery orders, and collecting sale proceeds. Thus, the income was received in India on behalf of the Association, making it taxable under Section 4(1)(a).

Issue 2: Accrual or Deemed Accrual of Income under Section 4(1)(c)
The second issue addressed whether the income accrued or arose or is deemed to accrue or arise in India under Section 4(1)(c). The High Court found that the Tribunal was wrong in accepting the Department's contention that the income accrued or arose in India. However, the Court concluded that the income must be deemed to have arisen or accrued in India for excess profits tax purposes, applying Section 42(3) of the Income-tax Act via Section 21 of the Excess Profits Tax Act. The Supreme Court agreed that Section 4(1)(a) applies generally and is not limited to any specific category of assessees, including non-residents. The Court clarified that Section 42, which deals with deemed income, is not necessary when income is actually received in India.

Issue 3: Chargeability under Section 42
The third issue was whether the income is chargeable to tax under Section 42 only. The High Court ruled that the income, profits, and gains are chargeable to tax under Section 4(1)(a) as income received in India on behalf of the Association, and Section 42 has no application in this case. The Supreme Court supported this view, stating that Section 42 pertains to deemed income and is not applicable when income is actually received in India. The Court emphasized that Section 4(1)(a) is applicable to both residents and non-residents and that the receipt of income in India attracts taxation under this section without the need to resort to the deeming provisions of Section 42.

Conclusion:
The Supreme Court upheld the High Court's answers regarding the assessment of income-tax. The income from the sale of salt in British India was rightly assessed under Section 4(1)(a) as income received in India. The provisions of Section 42 were not applicable as the income was actually received in India, making the deeming provisions unnecessary. The appeal was dismissed with costs.

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