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TMI Blog1950 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... t a portion of the profits earned by the business at Mysore should be deemed to have accrued or arisen in British India by reason of Section 42(1) of the Income-tax Act of 1922 as amended. The business connection found was that the assessee regularly purchased paper and other articles of stationery in British India and sent them over to his branch at Mysore for sale. In the circumstances the Income-tax Officer apportioned the profits of the Mysore branch under Section 42(3) of the Income-tax Act and assessed to Indian income-tax a sum of ₹ 9,139 along with the profits derived from the business carried on in British India. On appeal, the Appellate Assistant Commissioner reduced the Mysore profits deemed to have accrued or arisen in British India by reason of the business connection to the sum of ₹ 6,513. The assessee objected to the inclusion of this sum in his assessable income on the ground that Section 42 of the Indian Income-tax Act had no application to the case of a resident in British India, and that under Section 14(2)(c) of the Income-tax Act, income accruing or arising to a resident in British India, within an Indian State, and which had not been received in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax. Proviso (1) to Section 42 runs as follows:- Provided that where the person entitled to the income, profits or gains is not resident in British India, the income-tax so chargeable may be recovered........ and that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident person which are, or may at any time come within British India. Sub-section (2) of Section 42 runs in these terms :- Where a person not resident or not ordinarily resident in British India carries on business with a person resident in British India, and it appears to the Income-tax Officer, that owing to the close connection between such persons the course of business is so arranged that the business done by the resident person with the person not resident or not ordinarily resident produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business, the profits derived therefrom or which may re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main part of Section 42(1) applies to a larger category of persons namely residents as well as nonresidents. The matter again received the attention of the legislature in the year 1947. In spite of the amendment of Section 42 in the year 1939 the marginal note continued to be as it was before, namely, Non-residents . In the year 1947, a new marginal note was substituted in these terms: Income deemed to accrue or arise within British India , evidently with a view to counteract one of the reasons relied on by the Bombay High Court in Commissioner of Income-tax, Bombay v. Western India Life Insurance Company Ltd. [1945] 13 ITR 405, for its conclusion that sub-section (1) of Section 42 applied only to non-residents. The assessee's learned advocate relied upon the decision in Commissioner of Income-tax, Bombay v. Western India Life Insurance Company Ltd.1 in support of his contention that Section 42(1) applies only to non-residents. It may be stated that this decision, which has been reversed by the Judicial Committee on another point, goes the full length of his contention. The leading judgment in the case was delivered by Kania, J., (as he then was) and the reasons adduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruing or arising outside British India shall be deemed to be income accruing or arising within British India. In the case of residents there is no doubt an apparent redundancy, because Section 4(1)(b)( i) and (ii) charge to tax the entire income of a resident, whether it accrues or arises in British India or without British India. At the same time with reference to persons not ordinarily resident in British India the second proviso to Section 4(1)(c) brings into charge the profits and gains which accrue or arise to that person without British India, if they are derived from a business controlled in or a profession or vocation set up in India, or are brought into or received in British India. Section 42(1) widens the net of taxation in the case of persons not ordinarily resident by subjecting to tax profits and gains accruing or arising to them through or from any business connection in British India, or through or from any property or asset or source of income in British India. At least so far as persons not ordinarily resident in British India are concerned, it cannot be said that Section 42(1) of the Act is otiose. Lastly, the learned Judge of the Bombay High Court observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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