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TMI Blog1933 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... an equitable mortgage. It was to carry interest at 7 1/2 per cent, per annum which was payable in Hyderabad, and the principal was repayable by five annual instalments, such instalments to be paid in Hyderabad. There were certain provisions under which the lender was to be entitled to see the balance sheet and profit and loss account of the borrowers but it was not stipulated in the document that the loan was to be employed by the borrowers in their business or in any other particular manner. The assessee company paid a sum of ₹ 3,15,214 as interest during the year ending March 31, 1931, and the question is whether they can be charged with income-tax on that sum as agents of the Nizam. Section 42 of the Indian Income-tax Act provides that in the case of any person residing out of British India all profits or gains accruing or arising to such person whether directly or indirectly through or from any business connection or property in British India shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person and such agent shall be deemed to be for all the purposes of the Act the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs, he is entitled merely to a debt, i.e., a chose in action, and it seems to me that that is not property in British India within the meaning of Section 42, That disposes of the first question in the case. 4. The second question arises in this way. It is said that the Nizam has a palace in Bombay which produces some profit. It is not suggested that Messrs. Currimbhoys are in fact the agents of the Nizam, or that they have anything whatever to do with his palace in Bombay. But it is said that because they pay interest on their loan to the Nizam they can be constituted as a statutory agent of the Nizam under Section 43 of the Act, and that they thereupon become liable to be assessed to income-tax in respect of all or any of the Nizam's property in British India, The argument seems to me a somewhat startling one. I think it must go as far as this, that if a bank in Bombay credit the account of a non-resident customer with interest, so that the non-resident customer receives some money from the bank, the bank can be appointed as the agent of the non-resident customer and can bo assessed as his agent in respect of income-tax on the whole of that customer's property in Brit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'through them' the company is in receipt of profits or gains." So that he treats that case as one in which the agent came within both the second and the third categories, and there is no doubt whatever that on the facts of that case there was a business connection between the non-resident and the person appointed agent. But the question as to what was necessary in order to bring a person within the third category of agents in Section 43, that is a person through whom the nonresident is in receipt of income, was not decided, since in that case the person came certainly within the second category, and possibly also within the third category. Now I am not prepared to determine exactly what must be proved in order to bring an agent within that third category, but I am prepared to hold that it is necessary to prove that he is something more than a mere debtor. In this case Messrs. Currimbhoys are nothing but pure debtors of the Nizam of Hyderabad, That being so, I am prepared to hold that they are not persons who can be appointed agents within Section 43. If that is so, then they cannot be charged in respect of the Nizam's palace in Bombay, which is no doubt property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident foreigner, was in receipt of income through the Currimbhoys, and that this fact entitled the Income-tax Commissioner to treat him as an agent, which he did, Currimbhoys thereupon became statutory agents and liable to be treated as such agents for all the purposes of the Act, one purpose being payment of the income-tax in respect of the sum of Rs. three lakhs odd, which under Section 42 must be deemed to have arisen or accrued to the Nizam through or from a business connection or property in British India. If I understand the argument, this is how the learned Advocate General has put his case. 9. The question is whether the Commissioner was right in treating the Currimbhoys as agents. Section 43 of the Act provides that (a) any person employed by or on behalf of a non-resident or (b) having any business connection with a non-resident or (c) through whom a non-resident is in the receipt of any income &c. may be agent for the purposes of the Act if he is served with a notice by the Commissioner of Income-tax of his intention of treating him as such agent. There are thus three classes of agents. It is common ground that Currimbhoys do not come within the first. It is argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Nizam get the interest through the Currimbhoys 2 Obviously not. He does receive it from Currimbhoys. But that is not the statute. The statute does not say "Any person from whom such person &c." Then why should not the statute be given effect to ? In Commissioner of Income-tax, Bombay v. Bombay Trust Corporation (1928) I.L.R. 52 Bom. 702, s.c. 30 Bom. L.R. 1172 Marten C.J. was of opinion that the word "through" cannot be construed as meaning "from". I respectfully agree. But says the Advocate General that the case is overruled by the Privy Council. No doubt it is. But as I read the decision of their Lordships, Income-tax Commissioner, Bombay Presidency v. Bombay Trust Corporation (1929) I.L.R. 57 I.A. 49, s.c. 32 Bom. L.R. 364, I think it is not overruled on this point. The question whether the Bombay Company would come under the third class of agents described in Section 43 did not arise in that case. The agency which arose there came within the second class and in my opinion the observations of Lord Dunedin to which the Advocate General refers must be read as pointing out that the two conditions necessary were fulfilled, (1) that there was a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the debtor also resided in Indore. In this case the evidence is that the moneys were paid in Hyderabad and were repayable also there, Then it is difficult to see how the Nizam can be said to be the proprietor of the "debt" and can be said to possess property in Bombay because his debtor resides in Bombay. After the transaction was completed, the only right he has is to recover the moneys which he had lent. Assuming, therefore, that the ₹ 50 lakhs were kept intact in Bombay, it is difficult to see how the Nizam can be said to be the owner of it. Apart from that, I think, there is considerable force in the argument that property in Section 42 means immoveable property and not a mere debt or a chose in action. In Section 6, which deals with taxable income, the various heads of income chargeable to income-tax are bet out, one of them being property. Reading Sections 6 and 9 together the word "property" there only means immoveable property. There does not appear any satisfactory reason why the word should not be construed in the same sense under Section 42. 12. For these reasons I agree that the questions raised on the reference should be answered in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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