Wallace Bros ITAT

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Wallace Bros., & Co., Ltd. vs Commissioner Of Income-Tax, ... on 22 March, 1943

Equivalent citations: 1943 11 ITR 559 Bom

JUDGMENT

JUDGMENT OF APPELLATE TRIBUNAL

"The appellants are Messrs. Wallace Bros. & Co., Ltd., a company which was incorporated in theUnited Kingdom and which has no Director in India. It is, however, a sleeping partner in the

Bombay firm, Messrs. Wallace & Co. In years preceding the assessment year 1939-40, Messrs.

Wallace & Co., were treated as agents of the British Company and assessed as such. In the yearof charge the Income-tax Officer found that the income of the appellant Company arising in

British India in the accounting year exceeded its income arising without British Indian in that

year and treating the Company as a resident in British India within the meaning of Section 4-

A(c), assessed in on its total income including that arising outside British India after making anallowance of Rs. 4,500 as income from outside not brought into British India. Before the

Appellate Assistant Commissioner objections raised against the assessment were threefold :-

(1) that the business of the appellant company is directed and carried on, and the whole of its

control and management abides, in London and that though it is a partner in the Bombay firm it

does not carry on any business in British India;

(2) that Section 4-A(c) of the Indian Income-tax Act is ultra vires the Indian Legislature; and

(3) that Section 4-A could not be given retrospective effect so as to make the appellant firm

resident in the previous year as the amending Act came into effect only as from April 1, 1939.

All these contentions were negatived and hence this appeal. Before us, however, a further groundhas been raised, viz., that in the event of Wallace Bros. & Co., Ltd., being held to be residents,

who are hit by the provision of the Indian Income-tax Act, the assessment is nevertheless voidsince the provisions of Section 64 have not been complied with.

2. The income of the appellant firm arising in British India has been determined to amount of Rs.17,85,831 and that arising outside British India has been found to be Rs. 7,43,927, the aggregate

income thus being Rs. 25,29,758. These figures are not in dispute. Ex concessis its income

arising in British India in the relevant accounting year exceeded its income arising withoutBritish India in that year and consequently sub-clause (b) of clause (c) of Section 4-A applies to

the case, and in the absence of any paramount vitiating element such as the question of ultra

raised in this matter, the British Company would be a resident in British India in the yearpreceding assessment year and would as such be liable under Section 4(i)(b)(ii) to be assessed onits entire income accruing or arising to it both in and without British Indian during that year. It is

for this purpose that it has been strenuously contended that both Section 4-A(c) and Section

4(i)(b)(ii) are ultra vires the Indian Legislature and the grounds urged in support of this plea are(a) that legislation of this character, which has the effect of altering the domicile of a company

and of declaring a foreign company registered outside the country and having the whole of its

control and management elsewhere to be a resident in this country, is not warranted by the


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provisions of Section 99 of the Government of India Act; (b) that such a provision is opposed to

the canons of International law relating to the residence and domicile of trading corporations :

and (c) that the legislation is vitiated on account of its being extra-territorial.

3. Before embarking upon an examination of these contentions, we have to note an objection

traced in limine by the learned Advocate General who appeared for the respondent, that thisTribunal, created as it is by the particular statute some of whose provisions are impugned as ultra

vires, cannot go into that question but should on the other hand adopt the attitude assumed by the

Income-tax Officer and the Appellate Assistant Commissioner that it was their function merelyto administer the Act as it was and not to entertain questions relating to the validity of any of its

provisions. When, however, it was pointed out that the powers, duties and functions of the

Appellate Tribunal are judicial in nature and that for a final adjudication of the questions raised

by the assessee by the High Court the only machinery existing is that of a reference through theTribunal under Section 66(1) of the Income-tax Act, the learned Advocate-General did not press

his preliminary objection further.

4. Section 99 of the Government of India Act enacts inter alia that subject to the provisions ofthat Act, the Federal Legislature may make law for the whole or any part of British India. Under

the transitory provision made in Section 316, the powers conferred on the Federal Legislatureshall be exercisable by the Indian Legislature for the time being and until the establishment of

the Federation. Section 100(1) of the Act refers to List (1) of the Seventh Schedule to the Act

and provides that the Federal Legislature has power to make laws with respect to any of the

matters enumerated therein and item 54 of that List is "Taxes on income other than agriculturalincome." The question that falls to be decided is whether in enacting Section 4-A(c) and

4(1)(b)(ii), the Indian Legislature was not making a law concerning taxes on income for the

whole or any part of British India. So far Section 4-A(c) is concerned, what the IndianLegislature enacted was that in certain circumstances a foreign company would be deemed to be

a resident in British India in a particular year. The sub-clause (a) provided that it would be a

resident if the control and management of its affairs are situated wholly in British India in that

year. There can be no doubt about the correctness of that test as it is strict conformity with thelegislative trend and the current of judicial opinion in the United Kingdom. Sub-clause (b), with

which alone we are concerned, contemplates the case of a foreign company which is carrying on

trade or business in British India which causes income to arise in British India. It will be idle tocontend that legislation of that kind covering trading corporation engaging in trade in the country

is anything but legislation for the whole of British India. If then it is within the legislative

competence of the Indian Parliament to make a law imposing tax on such incomes, it is equallywithin its power to determine the rate or incidence of such a tax and the principle embodied in

sub-clause (b), providing the larger proportion of income made in British India as compared with

that arising outside as the test of residence, is in the ultimate analysis a method of determining

the rate or incidence of the tax. This acid test we have to apply to the case is whether thecompany was performing any acts or having any dealings which had the effect of yielding

income in the taxing country, and if these premises are satisfied, there is scarcely any difficulty

in holding that it was a law made for the whole of British India and as such intra vires the powers

of the Indian Legislature. The mere fact that a portion of the income assessed arose or accruedoutside British India does not, to our minds, make the provision incompetent. In this case

although the appellant firm is incorporated in the United Kingdom, it is a partner in a firm in


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Bombay and has through that firm been carrying on business in this country and deriving income

therefrom which is greatly in excess of the income that arose or accursed to it outside this

country. The consideration that the appellant company is only a sleeping partner in the Bombayfirm does not make the slightest difference. So long as the incorporated company is taxed by

virtue of its having carried on business and earned profits here, it is legitimate to treat it as a

resident in British India for the purpose of income-tax and there is no inherent impropriety orinjustice in bringing such concerns within the pale of the fiscal statute. It must further beobserved that if Section 4-A(c) is found to be intra vires as a law made for the whole of the

British India, it would follow as an inevitable result that the legislature would be competent to

make laws in any form it pleases affecting the residents in the country or those who have beenduly declared under Section 4-A(c) to be residents in British India. The question of the

constitutionally of Section 4(i)(b)(ii) does not, therefore, arise for separate consideration.

5. The two remaining objections based on international law and extra-territorial character of the

legislation do not call for elaborate treatment. The Courts in Grate Britain are barred from

entertaining an objection to the validity of an Act of Parliament on grounds such as these and on

that analogy it would appear that the municipal courts in this country would also be incompetentto entertain an objection based on grounds of repugnance to international law. Secondly, the

objecting based on international law does not apparently fit in with the plea of ultra vires.Thirdly, "residence" is radically different from "domicile" and in this case the legislation inquestion does not, even in the remotest manner, affect the domicile of the British Company. So

far as domicile is concerned, we are alive to the principle of the international law that it has to be

at the place considered by the law to be the centre of its affairs which in the case of a tradingcorporation is its principle place of business, that is to say, the place where the administrative

business of the corporation is carried on. But residence is not inherent in a company in the nature

of things and "residence" for the purpose of taxation is a matter of express legislation which has

to be determined by artificial rules. There is nothing contrary or repugnant to international law inenacting that the larger proportion of income made in British India as against that arising outside

shall be the test of residence. A corporation may very well be considered resident in a country for

one purpose and not for another as observed by Professor Dicey in "Conflict of Laws." As

observed by Lord Loreburn, Lord Chancellor, in De Beers Consolidated Mines Ltd. v. Howe,residence of a company within the meaning of Income-tax Act is not necessarily the same thing

as residence for the purpose of serving a writ. Again Viscount Cave, Lord Chancellor, pointed

out in Swedish Central Railway Co., Ltd. v. Thompson, "The effect of this decision is that, whenthe central management and control of a company abides in a particular place, the company is

held for the purposes of income-tax to have a residence in that place; but it does not follow that it

cannot have a residence elsewhere. An individual may clearly have more than one residence (See

Cooper v. Cadwalader); and on principle there appears to be no reason why a company shouldnot be in the same position." After reviewing exhaustively all the authorities, the Lord

Chancellor stated on p. 505 of the report, "From the above examination it would appear that,

while the authorities may not establish the possibility of a company having more than oneresidence for income-tax purposes, they are at least not inconsistent with that view. I do not cite

the decisions as to the residence of a company for the purpose of founding jurisdiction, because

they relate to a different subject matter : but, so far as they go, they point to the same conclusion.I hold, therefore, that a company may, for income-tax purposes, have a residence here as well as

a residence abroad." Lord Buckmaster, who was also a party to that decision, made the following


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observation : "The levying of tax is essentially a matter of domestic jurisdiction. A company may

do such acts within the jurisdiction of this country as causes it to be liable here as resident to

income-tax without excluding the possibility that it may also be held to be resident in anotherjurisdiction for the same or another purpose." (I bid p. 519). The decision in London & South

American Investment Trust Ltd. v. British Tobacco Co., (Australia) Ltd., has no bearing on the

facts of the present case as in that case there was no question of any business having been carriedon in the taxing country. It is thus by no means clear that either the place of incorporation or theprincipal place of business or the place of its real control and management constitute exclusively

the place of residence of a company for the purpose of the imposition of income-tax. It has been

conceded in the various decisions bearing upon the point that for the purpose of income-tax acompany may reside in more than one place and "residence" for the purpose of taxation is, as

pointed out by Viscount Sumner in Egyptian Delta & Land Co. v. Todd, a matter for express

legislation and not inherent in a company in the nature of things, as in the case of an individual.

Quite apart from this aspect of the matter, it would be possible to countenance the view that evenif the legislation in question tended to or had the effect of impinging upon the international law

or was extra-territorial in its scope, the legislation would none the less be competent since the

Indian Legislature has been held to have plenary powers of legislation as wide and extensive asthe Parliament itself. It is hardly necessary to traverse the catena of decisions in which that

principal has been propounded or applied, and we shall content ourselves with a brief reference

to the dicta of the Privy Council in Croft v. Dunphy, in which while dealing with a case from the

Dominion of Canada, Lord Macmillan said :

In the well-known case of Queen v. Burah, Lord Selborne in expressing the views of the Boardin the comparable instance of India, uses this very significant language : The Indian Legislature

has powers expressly limited by the Act of the Imperial Parliament which created it and it can of

course do nothing beyond the limits which circumscribe these powers, but when acting within

those limits, it is not any sense an agent or delegate of the Imperial Parliament but is and wasintended to have plenary powers of legislation as large and of the same nature as those of

Parliament itself."

Again on page 165 his Lordship observed :-

"The sole question is whether the Imperial Parliament in conferring upon Canada, as it

admittedly has done, full power to enact customs legislation bestowed or withheld the power to

enact the provisions now challenged. No question of any infraction of international law arises.

The question is a domestic one between the Imperial Parliament and the Dominion Parliament."

It is not denied that the Parliament has unrestricted powers and its legislation would be valied

notwithstanding that it may be contrary to or in conflict with international law, and it followswithout any doubt that the Indian Legislature also has similar unrestricted and coexhaustive

powers to legislate on subjects allotted to it irrespective of whether the legislation is extra-

territorial in nature and whether it is not in conformity with the principles of international law.

We hold for the foregoing reasons that Sections 4-A(c) and 4(i)(b)(ii) are not ultra vires andIndian Legislature and that consequently the Income-tax authorities were justified in treating the

appellant company as a resident in British India within the meaning of Section 4-A(c) for the


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accounting year and in assessing the company on the aggregate income received both within and

outside British India during that year.

6. The second objection is that Section 4-A(c) cannot be applied in respect of the previous year

as it came into force on April 1, 1939, and the previous year ended before that date. We had

occasion to examine the entire case law bearing upon the point in R.A.A. No. 175, (Bombay) of1941-42 (Sir Cowasjee Jehangir, Second Baronet, Bombay v. Income-tax Officer, Bombay), and,

as a result of the investigation we recorded out conclusion in the following passage :

"From the dicta of the various High Courts extracted above, it is manifest that it is not strictly

speaking correct to characterise the application of Section 16(1)(c) to the income of the previous

year as amounting to giving retrospective effect but what is really done is to apply the principlesin force in the year of assessment to the income of the previous year as computed under the

provisions of the Act."

We are of the opinion that the same principle holds good with regard to the present case as well

and that the Act as amended applies to the case as the assessment relates to the year 1939-40.This objection also fails.

7. The only question that remains is as to the alleged failure on the part of the Income-tax Officer

to conform to the procedure prescribed in Section 64 of the Income-tax Act. Under the firstclause of that section where an assessee carries on a business at any place, he shall be assessedby the Income-tax Officer of the area in which he resides. It seems to us that both the clauses

apply to the case. We have held that the assessee company was carrying on business in Bombay

as the partner of Messrs. Wallace & Co., and they were, therefore, rightly assessed by theIncome-tax Officer, Bombay. We have also found that the Company is a resident and since it is

deemed to be a resident by Bombay, it must be held that the Company is a resident in Bombay.

In this view there is no could assess a British Company whose principal place of business was inLondon.

8. The result is that the appeals fails and it is consequently dismissed."

On the application of the assessee under Section 66(1) the Tribunal referred the case to the

Bombay High Court :-

JUDGMENT

BEAUMONT C.J. - This is a reference made by the Income-tax Appellate Tribunal raising four

questions, but in substance only one question calls for serious consideration, and that is whetherthe provisions of Section 4-A (c) of the Indian Income-tax Act, 1922, a sub-section introducedby the amending Act of 1939, are ultra vires in whole or in part. That sub-section provides that a

company is resident in British India in any year (a) if the control and management of its affairs is

situated wholly in British India in that year, or (b) if its income arising in British India in thatyear excess its income arising without British India in that year. It is not suggested that

paragraph (a) is invalid. The provision that the residence of a company depends on where the

control and management of its affairs is situated is in accordance with English law. But it is


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suggested that paragraph (b) is ultra vires in that in involves the taxation of a non-resident in

respect of income derived outside British India.

The facts found by the Tribunal are that the assessee, Wallace Bros. & Co., Ltd., is a company

incorporated in the United Kingdom, that the control and management of its affairs is situated

wholly in that country and that the company has no director in India, but is a sleeping partner inthe firm of Messrs. Wallace & Co., which carries on, and has a place of business in Bombay.

What exactly is meant by the expression "sleeping partner", I am not sure. Seeing that the

English company is entitled under the articles of partnership to a 14/32 share in the profits of theBombay firm and that it can dismiss any other partner on six months notice, I apprehend that,

although it may leave the management of the affairs of the firm in India to the partners resident

in India, its views on matters of general policy are likely to meet with considerable respect from

those partners. However, I do not think it matters what the exact relationship of the partners interse may be; it is sufficient to find that the assessee-company is a partner in the firm of Wallace &

Co., which carries on business in Bombay. The share of the assessee-company in the profits of

Wallace & Co., for the accountings year was something over eight lacs, and it had other income

derived from British India, bringing the total to over seventeen lacs, and its income accruing orarising outside British India in the material year was about seven and a half lacs. I should have

said that the year of assessment is the year 1939-40, so that the accounting year is 1938-39, andthese figures relate to the accounting year. It is therefore clear that in respect of the accountingyear the income of the assessee-company arising in British India exceeded its income arising

without British India.

In order to understand the effect of Section 4-A of the Indian Income-tax Act, it is necessary to

look at some of the other provisions. Section 3 is the charging section, which provides that where

any Act of the Central Legislature enacts that income-tax shall be charged for any year at anyrate or rates tax at that rate or those rates shall be charged for that year in accordance with, and

subject to the provisions of, the Act in respect of the total income of the previous year. Then

Section 4(1) provides, so far as material, that the total income of any previous year of any person

includes all income, profits and gains from whatever source derived which (a) are received or aredeemed to be received in British India in such year by or on behalf of such person, or (b) "if such

person is resident in British India during such year, (i) accrue or arise to him in British India

during such year, or (ii) accrue or arise him without British India during such year." or (c) "ifsuch person is not resident in British India during such year, accrue or arise or are deemed to

accrue or arise to him in British India during such year." So that a person resident in British India

has to pay tax on income which accrues or arises to him without British India during the year inaddition to the income accruing or arising within British India. Then Section 4-A defines that is

meant by "residence in British India." It says :

"For the purposes of this Act - (a) any individual is resident in British India in any year if he - (i)is in British India in that year for a period amounting in all to one hundred and eighty-two days

or more."

Then there are other circumstances enumerated which constitute residence of an individual. Then

comes sub-section (c) which is the material one, and which I have already read, and so far as

relevant for the present purpose it provides that a company is resident in British India if any if its


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income arising in British India in that year exceeds its income arising without British India in

that year. That sub-section plainly justifies the present assessment, if it is valid, but the

contention of the assessee is that it is ultra vires.

Now, the Indian Legislature is not, as we know, a Sovereign Legislature. Its powers are

conferred by the Government of India Act, 1935, but within the ambit of the very widelegislative powers conferred by that Act the Indian Legislature is a Sovereign Legislature. The

question whether or not this sub-section is ultra vires must necessarily turn on the construction of

the Government of India Act, the contention of the assessee being that it is incompetent for theGovernment of India to provide that the income of a non-resident which accrued outside British

India shall be subjected to Indian Income-tax, because that would be extra-territorial legislation

of a character not sanctioned by the Act.

Before I discuss the terms of the Government of India Act. I will notice one or two arguments

advanced by Sir Jamshedji Kanga, arguments of a more or less general character designed, I

think, to induce in us a state of mind sympathetic towards the construction he desires us to adopt

when we approach the Act. He points out, in the first place, that the English system of income-tax taxation is to tax a resident in England upon the whole of his income derived from any source

and from any place, and to tax income derived from any property in England wherever the ownerof the property may be resident, and from that English practice he affirms a fundamental

principle underlying all income-tax legislation that you can only tax a person resident, or

property situate, within the taxing country. But the English Legislature is a Sovereign

Legislature, and there is nothing whatever to prevent it from extending its practice by imposingincome-tax on foreign income of a non-resident in cases where there are assets within the

country which enable such taxation to be effective. It is, in my opinion, impossible to maintain

that, because the English Legislature has not chosen to tax income of that nature, therefore noother system of legislation can tax such income. Nor am I impressed with the argument, which

found some favour with the learned Chief Justice of Calcutta in a case to which I will refer

presently, that one ought in construing the Government of India Act to approach the matter with

a presumption that the English Parliament did not intend to confer upon the Indian Legislature apower which it possessed itself, but had never thought it desirable to exercise. Conditions in

England and India are quite dissimilar. There is not evidence on the point, but it may well be,

and I have no doubt in my mind that it is a fact, that in British India a much larger proportion ofbusinesses send a part of their profits out of the country than is the case in England, and I see no

reason, therefore, why the Indian Legislature should not be empowered to impose taxation on a

class of income which the English Legislature has left alone. It was said that this English practiceconstituted a sort of legislative practice, which tended to how that it cannot have been intended

that income of this sort should be subjected to taxation. I do not think in this case any question of

legislative practice arises, because we are not called upon to consider the construction of any

particular word of the Government of India Act, so that we cannot be asked to construe them inthe light of former legislative practice.

Then it was argued that the only moral justification for imposing income-tax, if one may usesuch an expression in relation to such a subject, was that a man is taxed in return for the

protection afforded him by the laws of the taxing country. But that argument does not help here,

because it is the basis of sub-section (c) of Section 4-A (which I will refer to as "the impugned


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sub-section" that the bulk of the assessees income is derived from British India, and, therefore, is

earned under the protection of British Indian laws.

Then it was argued by Sir Jamshedji that there was something unfair and improper in taxing the

foreign income of a non-resident. In contrary to natural justice, but he could not resist saying so

in reply. But, with all respect, there does not seem to me anything inherently unfair in providingthat a man who earns income in British India, but does not reside here, should be taxed rather

more heavily than a man who does reside here, and who, therefore, spends his income in this

country, and engages in those social services which a normal resident, in greater or less degreeaccording to his taste, does engage in. However, all these arguments, as I have said, were only

designed to induce us to approach the construction of the Government of India Act in a spirit

sympathy tic to the assessees case.

Now, coming to the Government of India Act, Section 99(1), read with Section 316, provides

that, subject to the provisions of the Act, the Indian Legislature may make laws for the whole or

any part of British India, and a Provincial Legislature may make laws for the Province. In that

sub-section there is no reference whatever to extra-territorial legislation, though the object oflegislation must be British India. But sub-section (2) provides that without prejudice to the

generality of the powers conferred by the preceding sub-section, no Indian law shall, on theground that it would have extra-territorial operation, be deemed to be invalid in so far as it

applies to five matters of legislation which a re therein enumerated. That sub-section seems to

show that the Legislature realised that the general power in Section 99(1) to make laws for the

whole or any part of British India might involve a question as to whether a law with extra-territorial effect would come with in the power. The Legislature thought of five matters, on

which a doubt might arise, and expressly dealt with them; but it realised that there might be

others and, hence the opening words of sub-section (2), "Without prejudice to the generality ofthe powers conferred by the preceding sub-section." Then Section 100 and the Seventh Schedule

enumerate in three lists the matters on which the India Legislatures may make laws, the first list

being matters on which the Central Legislature can legislate, the second list being those on which

the Provincial Legislature may legislate, and the third list being matters on which the Central andthe Provincial Legislatures may both legislate. It is to be noticed in passing that several of the

items in the first list involve some sort of extra-territorial operation, for instance, items 22 to 25.

Item 54 in List I deals with income-tax, and includes "Taxes on income other than agriculturalincome." Taxes on agricultural income are included in the Provincial list. So that two things

seem to me clear from those sections and the Seventh schedule, first, that the mere fact that an

Act of the Central Legislature has some extra-territorial operation is not enough to invalidate it,and, secondly, that the power to impose income-tax is vested in the Indian Legislature.

Sir Jamshedji Kanga contends that the impugned sub-section is of purely extra-territorial effect.

That is clearly going too far, since the basis of the sub-section is that the bulk of income has beenearned in British India. On the other hand, Mr. Setalvad, for the Commissioner of Income-tax,

maintains that, properly considered, the sub-section has to extra-territorial effect, and he has

referred us to certain authorities of the Federal Court of Australia in which the meaning of theexpression "extra-territorial legislation" has been considered. I do not think it necessary to go

into that question in any detail, because there is no expression in the Government of India Act

which we are called upon to interpret which mentions extra-territorial legislation. There is clearly


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no provision in the Act which says that any extra territorial legislation shall be outside the

powers of the Indian Legislature. I will only refer to one passage in Colonial Gas Association

Ltd. v. Federal Commissioner of Taxation from the judgment of Mr. Justice Dixon, in which hesays :

"To derive income from a country involves the person deriving it in a territorial connection withthe country sufficint to support the vaidity of an exercise of thepower in respect of the person as

distinguished from the income."

That is to say if a person is deriving income from a business carried on in country, he has a

sufficient teritorial connection with that country to prevents law imposing tax upon him being

regarded as extra-territorial. Mr. Setalvad contends that inasmuch as the whole basis of theliability to tax under the impugned sub-section is based on the bulk of the assessees income

arising in British India, the sub-section would not fall within an express prohibition against any

extra-territorial legislation. It is no doubt, true that there is some extra-territorial effect in the

impugned sub-section. It does enable the foreign income of a non-resident to be taxed. But other

sections have some extra-territorial effect, for instance Section 4-A(a)(i), which directs that anindividual shall be regarded as resident in British India if he has been there for a period

amounting to one hundred and eighty-two days; so that, although he has been in India only forhalf a year, he is to be taxed for the whole year : in that some there is some extra-territorial effect

in that provision. So I think there is in Section 42, which enables a non-resident to be taxed in

respect of income derived from a business connection in British India. That extra-territorial

effect is not so great as in the case of the impugned sub-section, because the income taxed undersection 42 must be derived from British India : but still it does enable a non-resident to be taxed.

If one is going to say that the Government of India Act precludes all legislation which has any

extra-territorial effect, it would be difficult to justify, not only the impugned sub-section, butSection 4-A(a)(i) and Section 42. But, as I have said, there is nothing in the Government of India

Act which lays it down that any legislation having and extra-territorial effect is invalid, and short

of such a prohibition, I cannot see any principle on which the impugned sub-section can be held

to be ultra vires. Whether it is impolitic as being calculated to drive capital out of the country, itis not for us to consider. As the Tribunal has pointed out, in the ultimate analysis the effect of the

sub-section is to increase the amount of the assessment on the taxpayer. In clothing a company

with an artificial residence for the purpose of income-tax, the Income-tax Act is merelyemploying machinery for levying additional tax in relation to income rising within British India.

The same result could be achieved by providing that in the case of an assessee who is shown to

possess income arising outside British India the amount of his assessment should be increasedproportionately to the amount of his income accruing outside British India.

Referring to some of the cases cited. There is, I think, no doubt from the English cases in the

House of Lords, particularly Egyptian Delta Land and Investment Co. v. Todd and SwedishCentral Railway Co. v. Thompson that, in the case of a company, residence is always artificial,

and should be the subject of express legislative enactment, and furthermore that a company may

have two places of residence. There can, therefore, be no objection to the impugned sub-sectionmerely because it enacts a definition of an artificial character in respect of the residence of

companies. It seems to me clear from the power of the have power to determine who is to pay the

tax, and for that purposes to lay down rules as to who is to be regarded as resident in, and what


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income is to be deemed to arise in, British India. I can see no real basis for the assessees

argument.

We were, referred to a very recent decision of a Calcutta High Court in Raleigh Investment Co.,

Ltd. v. Governor General in Council in which the Court held that Explanation (3) to Section 4 of

the Indian Income-tax was ultra vires, no doubt partly on the ground that it was of an extra-territorial character. I do not find myself in agreement with all the views expressed by the

learned Judges in that case, but the actual decision has no operation on the matter before us.

There may be much more to be said for the invalidity of Explanation (3) that for the invalidity ofthe sub-section with which we have to deal.

In my opinion, the contention that Section 4A(c) is invalid is not well founded, and that reallydisposes in substance of all the questions.

The first question is :

"Whether in the circumstances found by the Tribunal in its order under Section 33 the assessee-company was taxable to income-tax and super-tax for the assessment year 1939-40 in respect ofthe income (Rs. 7,48,437 less Rs. 4,500) which accrued or arose to it without British India in the

previous year ?"

The answer is in the affirmative.

The second question is :

"Are the provisions of Section 4-A(c) and 4(1)(b)(ii) of the Income-tax Act ultra vires the Indian

Legislature ?"

The answer is in the negative. The answer to this question depend on that to the first one.

The third question is :

"Is sub-clause (b) of Clause (c) of Section 4-A of the Amended Act applicable to the assessment

of the assessee-company for the year 1939-40 ?"

I gather that the argument before the Tribunal was that retrospective effect could not be given to

the impugned sub-section, but, as the Tribunal points out, there is no question of giving

retrospective effect. No doubt, the Amended act came into operation after the close of the

previous year, but under that Act income of the previous year has to be ascertained in accordancewith the provisions of the Amended Act in order to determine the assessment for the current

year. Sir Jamshedji Kanga raised a further point that the sub-section did not apply, because therewas no finding that the assessee was to be treated as resident in British India in the year of

assessment, the finding only relating to the previous year. But, in my opinion, it is only the

previous year which is relevant, so that the third question must be answered in the affirmative.

The fourth question is :


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"Whether on the fats found by the Tribunal the Additional Income-tax Officer, Companies

Circle, Bombay, had jurisdiction under Section 64(1) or Section 64(2) to make the assessment ?"

Under Section 64(1) the assessment has to be made by the Income-tax Officer of the area in

which the assessees place of business is situate. Here the assessee has been found to be a partner

in the firm of Wallace & Co., and the assessment was made by the Income-tax Officer for theareas in which Wallace & Co., carry on business. Therefore, it seems to me plain that the answer

to question 4 is that the Officer had jurisdiction under Section 64(1). The question whether

jurisdiction also arose under Section 64(2) does not arise.

Sir Jamshedji Kanga was anxious to raise certain other questions, which the tribunal had been

asked, and had refused to raise, but we can only deal with questions before us. As far as we canjudge, they adequately raise all the questions which can properly be raised, and we see no reason

whatever for amending or adding to such questions.

The assessee must pay the Commissioners costs.

RAJADHYAKSHA, J. - I agree and have nothing to add.

Reference answered in the affirmative.

Wallace Bros ITAT

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Transcript of Wallace Bros ITAT