1990 (10) TMI 5 - SC - Income Tax

Assessee a company resident in British India had a cotton mill in British India - cloth manufactured by the mill was sold in British India as well as in the native States - In respect of remittance received from native States whether the assessee could claim deduction of profits deemed to arise in British India and only the balance could be taxed under s. 14(2)(c)

Summary

Issues:
Assessment under sections 42(3) and 14(2)(c) of the Indian Income-tax Act, 1922 - Interpretation of remittances made by the assessee from Indian States to British India - Application of the principle of attribution in the context of a mixed fund composed of taxed and non-taxed amounts.

Analysis:
The judgment pertains to appeals arising from assessments for the years 1945-46, 1946-47, and 1947-48 under the Indian Income-tax Act, 1922. The main issue revolves around the interpretation of sections 42(3) and 14(2)(c) of the Act concerning the assessment of profits deemed to have accrued in British India and profits brought into British India from the native States, respectively. The assessee, a company with a cotton mill in British India, had sales in both British India and the native States, leading to assessments based on deemed income and remittances to British India.

The assessee contended that once one-third of the income was assessed under section 42(3), no further assessment should be made under section 14(2)(c) for profits brought into British India. However, this contention was rejected by the tax authorities and the Tribunal. The Tribunal held that the assessment under section 14(2)(c) was distinct from the deemed income under section 42(3), leading to the assessee's additional argument regarding the attribution of remittances to taxed and exempt profits.

The Tribunal rejected the assessee's contention on remittances but suggested apportioning remittances over assessed and exempt parts based on the proportion of profits made in the native State. The High Court upheld this view, emphasizing the absence of two separate funds and the reasonable exclusion of one-third of the remittances from taxation. The principle of attribution in the context of a mixed fund was discussed, citing precedents and emphasizing its application depending on the facts and provisions of the statute.

The judgment concluded that the Tribunal's decision to exclude one-third of the remittances from taxation was reasonable and upheld by the High Court. The appeals were dismissed, affirming the refusal to grant further relief to the assessee. The application of the principle of attribution in the context of a mixed fund was analyzed, highlighting its relevance based on the specific circumstances and legal framework involved in the case.