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TMI Blog1919 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessed. There are various classes of incomes that are liable to be assessed and there are various reasons for taxation under the Act. This class of income, viz., the income from business, is taxable for any one or all of the following reasons: (1) if the business is situate in British India, (2) if the income from such business accrues or arises in British India or is deemed to so accrue or arise, (3) even if the business is situate outside British India, if the income is received in British India, (4) if the foreign business is carried on from British India, i.e., if it is controlled from here. Not one of these reasons exists in the present case. The income from this business is interest on moneys, but such interest is payable in this case only outside British India, for the place where the contracts of. loan are made is outside British India and the place of payment of interest either by express or implied contract is outside British India-Commissioner of Stamps v. Hope [1891] A.C., 476 at p. 481, Rex v. Lovitt [1912] A.C., 212 at p. 218 -compare Section 17, explanation III, Civil Procedure Code (XIV of 1882). The facts alleged in this case, viz., that the principal keeps him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le businesses. Section 9 speaks of any business, i.e., wherever situate. This income, though not actually remitted into British India, is one that 'accrues' or 'arises' in British India within Section 3 or it is at least one that must be deemed to accrue or arise within that section, as the proprietor has a present right to demand remittance to him of the same. Anything that is payable at present or receivable is something that accrues or arises and actual receipt is not necessary to constitute the income accruing or arising. That is the meaning of the word 'accrue'; see Century Dictionary, Bouvier's Law Lexicon, Colquhoun v. Brooks (1888) 21 Q.B.D., 52 at 59 and Colquhoun v. Brooks (1889) 14 App. Cas., 493 at 511. After the words 'accrues' or 'arises' in Section 3(1) we must understand the words 'to a person.' As what is charged is the income, i.e., excess of receipts over expenses, place of payment by debtors is immaterial, Reference was made to Sections 7, 10(3), 31 to 33 and 14. The business though situate outside British India is carried on in British India, as it is from here that the business is controlled. A business is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of which is sought to be taxed must be held to have bean carried on in British India and, therefore, the income of that business is taxable. 8. It will be convenient to dispose of the last contention first. The facts in this connection as submitted are as follows: The entire business operations producing the income was conducted at the places abovementioned outside British India by agents appointed for fixed periods, who use their own discretion in lending money to customers. The only part taken by the proprietor in connection with the business is to acquaint himself with the state of the business abroad and occasionally to issue general instructions. It is impossible for us, on these facts, to hold that the business is one carried on in British India. The learned Advocate-General cited several English rulings in support of his arguments, but, as pointed out by Lord Halsbury in San Paulo Railway Company v. Carter [1896] A.C. 31 [see also per Lord Loreburn in De Been Consolidated Mines, Limited v. Howe [1906] A.C. 455] It is a question of fact where the trade is carried on; at all events, it an inference to be drawn from the facts and circumstances of each case. In that case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome are carried on, as in this case, outside British India, would be assessable to Income Tax. 10. At one time the Advocate-General seemed even to argue that it is Section 9(1) by which the tax payable on account of income derived from business is to be determined. All that it says is: that the tax shall be payable by the assessee under the head 'Income derived from business' in respect of the profits of any business carried on by him. and the rest of the section deals with the mode in which such profits shall be computed. If Section 9(1) be taken to furnish the whole test, then Section 3(1) would have to be excluded from consideration in dealing with the income derived from business. But the Advocate-General was not really prepared to go so far; at any rate, there can be no doubt that Section 9(1) must be read along with Section 3(1) and that it is the latter that lays down the test to be applied in determining all incomes assessable to the tax including income derived from business. If a certain income derived from business cannot be said to accrue or arise or to be received in British India, that income would not be assessable by virtue of anything contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tue of which the income sought to be assessed could be said to accrue or arise in British India. 14. If we look at the history of this enactment, the case sought to be made on behalf of the Crown appears to be still more untenable. The provision of Act VII of 1918, so far as the present question is concerned, is practically in the same words as that of the Income Tax Act of 1886. There the word 'income' used in the Act is defined as income and profits accruing and arising or received in British India and the present Act says that it shall apply to all income if it accrues or arises or is received in British India. Whether there is any difference intended at all between the phrase accrues and arises and the phrase accrues or arises, it could not reasonably be said that there has been any such change as to affect the question we are dealing with. Act VI of 1886 was in force for more than thirty years before the present Income Tax Act was enacted, and the Advocate-General himself has informed us that, at least before 1915 or 1916 when he was consulted with respect to certain cases of a nature similar to this, the general practice of the Revenue Department was not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cify the manner, in which each class is to be assessed, each beginning The tax shall be payable by an assessee under the head : and then one of the six classes in Section 5 is specified and the manner of assessment appropriate to it is described. Of the remaining provisions only Sections 7, 10(3), 31 and 33 have been relied on and to them I return. The point is at present that Section 3(1) affords a comprehensive definition of income for the purpose of the Act and that this definition is to be regarded as controlling, not as enlarged by, the language subsequently used in classifying the different descriptions of such income and prescribing the method of assessment for each. 20. This is important, because the main argument for the Crown is that the description of one such class in Section 9 Income derived from business and the direction to assess such income on the profits of any business carried on by the assessee are either supplementary to or can be substituted for the definition of income in Section 3(1); and that the carrying on of the business in British India, which, for the purpose of argument, may be regarded as established, is sufficient to render respondent charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Australasia and China Telegraph Company [1906] A.C., 526, and Lovell and Christmas, Limited v. Commissioners of Taxes [1908] A.C. 46. My conclusion is that; respondent has not been shown to be liable for assessment; and that disposes of the main question raised by the case submitted to us. 23. It does not however dispose of the subsidiary question, which the learned Advocate-General has also argued, whether respondent carries on business in British India within the meaning of the Act. A decision on that question has been unnecessary, because, even on the assumption that it should be answered in the affirmative, a conclusion in favour of respondent's liability cannot be reached. If we had had to decide it, we should have had to call for much more definite information as to the facts than we have been given; and I am constrained to express my doubts whether a question, which is so largely one of fact with reference to the method of carrying on the business of a particular assessee, is in any substantial degree one with reference to the interpretation of the Act, which we can deal with to advantage under Section 51. T.V. Seshagiri Iyer, J. 24. The undisputed facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be preserved only if there is a clear understanding on this question. The English Income Tax Acts appear to have been based on the first of these principles, Lord Herschell in Colquhoun v. Brooks (1889) 14 App. Cas. 493 says: the Income Tax Acts, however, themselves impose a territorial limit; either that from which the taxable income is derived must be situate in the United Kingdom or the person whose income is to be taxed must be resident there. 30. The same principle is traceable in the provisions of the Indian Income Tax Act. There is no reason for imputing to the Indian Legislature an intention to depart from the principle which has been so well recognized in England. One other observation preliminary to the examination of the sections may be made, and that relates to the rule of construction of all Income Tax enactments. In Partington v. The Attorney-General (1869) L.R. 4 H.L. 100, Lord Cairns stated the rule thus: As I understand the principle of all fiscal legislation, it is this. If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with the procedure for what is known as summary assessment, with respect to a particular class of income. Then comes Chapter IV which was much commented upon during the argument. The scheme of this part of the Act is to amplify the principle stated in Section 3, Clause (1). It is intended to affect two classes of persons--persons who are not sui juris but who are resident in British India and carry on business through an agent or guardian or the Court of Wards, and persons sui juris who are not resident in British India but who conduct their business in British India through an agent. This is really another illustration of the second clause of Section 3(1). It states a notional rule of law, the object aimed at being that the owner of the income should not escape liability either because he is not sui juris or because he is not a resident in British India, provided he receives the benefit of transactions in British India through somebody who represents him. The other chapters of the Act are not material and I shall not deal with them. 34. There is one section however on which a preliminary argument was addressed to us and it is as well that I should say a word about it. 35. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal in British India? The learned Advocate-General argued that the second part of Section 3(1) made it clear that the income in the hands of the agent is income in the hands of the principal; and he referred to Sections 31 and 33 for this proposition. It seems to me that these two sections are inconsistent with the contention advanced. I have already referred to the nature of these two sections. Now I shall examine once again Section 33 on which so much stress was laid by the Advocate-General. There are two parts of it. One relates to 'profits or gains accruing or arising to such a person whether directly or indirectly through or from any business connection in British India; and the other to what 'shall be deemed to be income accruing or arising within British India.' The object of this section, as I understand it, is to observe the comity of nations which directs that all nations in enacting fiscal laws should as far as possible put a territorial limit to the operation of the fiscal enactment. In other words they should only tax property in situ. It is with that object, this section enacts that the income which is transmittable to a person outside British India sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are not facts which would enable us to hold that the brain was in Kanadukathan which directed the operations in Saigon. Mr. Krishnaswami Ayyar drew our attention to the difference between business being carried on and profits being received, as observed in San Paulo Railway Company v. Garter [1896] A.C. 31. The language employed by some of the noble Lords in that case was very strongly relied on by the learned Advocate-General. The observations of Lord Davey who subsequently explained the position in Commissioners of Taxation v. Kirk [1900] A.C. 588 do not support the view that by giving general instructions the business is carried on in the country from which these instructions issue. Moreover, the facts in De Beers Consolidated Mines, Limited v. Howe [1906] A.C. 455 and in Cesena Sulphur Company v. Nicholson (1876) 1 Ex. D. 428 and in Mitchell v. Egyptian Hotels, Limited [1910] A.C. 1022 were different from the facts on which we have been asked to give our opinion. I do not therefore think any good will be served by discussing these cases. In my opinion the facts to which our attention has been drawn are not specific enough to enable us to say that the business was really carr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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