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TMI Blog1940 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... years I gather that a notice was sent to the principal officer of the Patiala State Bank, and he made a return on which the assessments are based. We are not, therefore, concerned to consider whether the Patiala State bank was bound to comply with the notices, and to make the required returns, nor are we concerned to consider what would have happened, if the Patiala State Bank had adopted a different course. It is possible that in that event the machinery for taxing a foreign company through its agent would have been applicable, but that it is not a matter which calls for our decision. The principal point, which has been argued, and the only question of substance is whether the Government Trading Taxation Act of 1926 is a valid Act. The argument of the assessee is that it is ultra vires the Government of India. Before determining whether or not it is ultra vires the Government of India, it is necessary to consider what the Act actually means and purports to effect. The title is: "An Act to determine the liability of certain Government to taxation in British India in respect of trading operations." Then the preamble is: "Whereas it is expedient to determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion Government is liable to Indian Income-tax, as though it were a company. Turning to the Income-tax Act of 1922, which is the Act applicable in this case, "company" is defined in Section 2(6) as meaning a company as defined in the Indian Companies Act, 1913, or formed in pursuance of an Act of Parliament or of Royal Charter or Letters Patent, or of an Act of the Legislature of a British possession, and includes any foreign association carrying on business in British India, and which is certified as therein mentioned. I think the effect of Act III of 1926 is to add to that definition, so as to include a Dominion Government deemed to be a company under Act III of 1926. The effect of the charging sections, Sections 3 and 4, is to render the income, profits and gains of a company liable to British Indian Income- tax, if such income, profits and gains accrue or arise or are received in British India. So that Act III of 1926 comes to this : that where a Dominion Government is carrying on a business anywhere, it is liable to British Indian Income-tax in respect of the income, profits and gains of that business which accrue or arise or are received in British India. The Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect in treating this Act of 1926 as being confined to a business carried on in British India. If the Act is intra vires, that disposes of the principal question raised by the Commissioner, which is question (1): "Whether the Government Trading Taxation Act (III of 1926) is applicable to the Patiala State Bank rendering it liable to taxation under the Indian Income-tax Act, 1922?" The answer must be in the affirmative. Question (2) is: "Whether investment by the Patiala State Bank of a part of its surplus funds in the Government of India Securities constitutes trading or business in British India within the meaning of Section 2 of the Government Trading Taxation Act?" This question is inaccurately framed. Section 2 does not mention trading or business in British India. We can only answer the question by saying that the income from the investments are profits from the business of the Bank received in British India, and as such taxable. Question (3) is: "Whether the property situate at Mussoorie taken over by the Patiala State Bank from its debtor, a subject of the Patiala State, in part satisfaction of a loan advanced to him, is property occupie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f His Majesty's Dominions, as stated in Section 2(3) of Act III of 1926, and, therefore, it was not covered by the Act. It was next argued that the machinery to assess the State under Section 42 and/or Section 43 of the Income-tax Act, 1922, was not adopted. It was lastly contended that as the State is owned by the Ruler, it was not competent for the Government of India to legislate in respect of that Ruler. The question, whether the Act was ultra vires the Government of India or not, was raised and decided in In the matter of Ram Prasad [1929] 52 All. 41 and the learned judges there rejected the contention that It was ultra vires. The argument in substance is that Act III of 1926 makes a Dominion Government in respect of its trade or business, wherever carried on, liable to be taxed as a company. The words "in British India" are not used in connection with trade or business or income arising in connection therewith. Where the Legislature wanted to use those words in connection with property occupied in British India, and goods owned in British India, they expressly said so. From the omission of those words in connection with trade or business or income arising in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India" were attempted to be read as connected with "trade" in Section 2 of Act III of 1926. The words "in British India" have to be read in connection with income by reason of the provisions of the Indian Income-tax Act. But Act III of 1926 does not in terms state that the words "trade" or "business" or "income arising in connection therewith" have to be in British India. I find no justification for including those words in Section 2 of Act III of 1926 in connection with 'trade', 'business' or 'income arising in connection therewith'. As I have pointed out, by reason of clause (2) of Section 2 however the result is the same, namely, that the liability of the Dominion will be as if it were a company working under like circumstance under the Indian Income-tax Act. The second contention, that the Patiala State was not under the protection of His Majesty, cannot be upheld in view of Sanads III and IV of 1815, which are found printed in Aitchison's "Treaties, Engagements and Sanads," Vol. I, at pages 158-159. It is there clearly provided that the Raja had the right of protection from the Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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