SUTLEJ COTTON MILLS LTD. vs. COMMISSIONER OF INCOME TAX, WEST BENGAL III, CALCUTTA

CIVIL APPEAL No. 1467/1976Supreme Court1990 INSC 32023 October 1990Bench: 2 JudgesAuthor: T.K. THOMMEN, S.C. AGRAWAL COTION MILLS LTD.7 pages
AI SummaryDismissed

What were the facts?

The appellant, Sutlej Cotton Mills Ltd., a company resident in British India, operated a cotton mill. Cloth manufactured was sold in British India and native States. For assessment years 1945-46, 1946-47, and 1947-48, the assessee was assessed under Section 14(2)(c) of the Indian Income Tax Act, 1922, for sums remitted from native States to British India. This was in addition to assessment under Section 42(3), which deemed one-third of profits from sales in native States as income accrued in British India. The assessee contended that since one-third of profits were already taxed under Section 42(3), no further assessment should be made under Section 14(2)(c) for remittances. This was rejected by the Income Tax Officer, Appellate Assistant Commissioner, and the Income Tax Appellate Tribunal. The Tribunal, however, reduced the additions by one-third of the remittances.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, upholding the High Court's decision. The Court held that the principle of attribution, allowing a taxpayer to attribute payments to taxed income, is applicable only to the extent it is consistent with the facts and the provisions of the statute. In this case, the assessee did not have two separate funds, but a single mixed fund comprising taxed and non-taxed amounts. The Tribunal's view, which allowed one-third of the remittances to be exempted from taxation (proportionate to the one-third of profits already taxed under Section 42(3)), was considered reasonable and consistent with the facts and law. Therefore, the High Court was justified in refusing further relief to the assessee. The operative direction was to dismiss the appeals.

What were the issues?

1. Whether sums remitted from native States to British India are liable to assessment under Section 14(2)(c) of the Indian Income Tax Act, 1922, in addition to income already assessed under Section 42(3) of the Act, when one-third of profits from native States were deemed to have accrued in British India. Assessee's contentions: - Since one-third of income was already assessed under Section 42(3) as deemed income in British India, no further assessment should be made under Section 14(2)(c) for remittances. - If remittances exceeded the amount taxed under Section 42(3), only the excess should be taxed under Section 14(2)(c). - In a mixed fund of taxed and untaxed monies, any remittance should be deemed to have been paid out of the taxed portion, and the taxpayer has the right to attribute payments to taxed money for benefit. Revenue's contentions: - The judgment records no specific contentions for the revenue, but their position was to uphold the assessments made by the lower authorities.

Which sections of the Income-tax Act were involved?

Section 14(2)(c),Section 42(3),Section 66(1)

AI-generated summary — verify with the full judgment below

SUTLEJ COTION MILLS LTD. v. COMMISSIONER OF INCOME TAX, WEST BENGAL HI, CALCU.TIA OCTOBER 23, 1990 [T.K. THOMMEN AND S.C. AGRAWAL, JJ.] Income Tax Act, 1922: Sections 14(2)(c) and 42(3)-Assessee- Resident in British India-Remittances from native Scates-Whether liable ,to be assessed-In addition to assessment of profics from native States as deemed income from British India-Principle of attribution- Applicability of.

The appellant, a company resident in British India, bad a cotton mill. The cloth manufactured in the mill was sold in British India as well as native States. For the assesmient years I94S-46, I946-47 and I947-48, the company was assessed under Section 14(2)(c) of the Income Tax Act, 1922, in respect of certain sums remitted to British hidia from native States, in addition to the assessment under Section 42(3), deem- ing I/3rd of the profit from the sales effected in native States, as having accrued from the manufacturing part of business in British India.

The assessee's contention that I/3rd of income having been asses- sed undet Section 42(3), as income deemed to have accrued in British India, no further assessment should be made under Section I4(2)(c)

The order continues below.

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