THE COMMISSIONER OF INCOME-TAX, BOMBAY vs. DHARAMDAS HARGOVINDAS.

CIVIL APPEAL No. 240/1955Supreme Court[1961] 3 S.C.R. 73103 February 1961Bench: 3 JudgesAuthor: P.B. GAJENDRAGADKAR, A.K. SARKAR, K.N. WANCHOO S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME16 pages
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What were the facts?

The assessee, a resident of British India, had funds deposited with a concern in Bhavnagar, outside British India. On April 7, 1947, a portion of these funds was transferred to a concern in Bombay. The assessee was assessed to tax on this amount under Section 4(1)(b)(iii) of the Income-tax Act, 1922. The assessee contended that for Section 4(1)(b)(iii) to apply, the receipt in the taxable territory must be the first receipt of income. The Tribunal found that a remittance of the assessee's profits from Bhavnagar to Bombay had occurred, making it taxable. The High Court, however, answered the reference in the negative, holding that the income must be brought into or received by the assessee himself in the taxable territory, not on his behalf. The Supreme Court had previously remanded the case for a further statement of case regarding how the cheque was brought from Bhavnagar to Bombay and the agreements made.

What did the Supreme Court hold?

The Supreme Court held that the assessee was liable to tax on the amount. Per Gajendragadkar and Wanchoo, JJ., for a person resident in taxable territories who has already received income outside those territories, bringing that income into or receiving it in the taxable territories makes it chargeable to tax. Unlike Section 4(1)(a), where the receipt must be the first receipt, for Section 4(1)(b)(iii), the receipt in the taxable territories need not be the first receipt. Per Sarkar, J., while the income might not have been 'received' in the taxable territory in the strict sense as income can only be received once, the assessee had 'brought into' Bombay that income. The shape of the income could change, and the assessee's right to receive money (a debt) was exercised in Bombay, thereby bringing the income into the taxable territory. The appeal was allowed, and the question referred was answered in the affirmative.

What were the issues?

1. Whether, on the facts found, there was any remittance by the petitioner to Bombay within the meaning of and assessable under Section 4(1)(b)(iii) of the Income-tax Act, 1922. (Mixed question of law and fact, concerning Section 4(1)(b)(iii)). Assessee's contentions: - To attract Section 4(1)(b)(iii), the receipt in the taxable territory must be the first receipt of income. - If the agreement for advance to the Bombay Mills was made in Bhavnagar, and the cheque was delivered there, then the notional receipt and advance would have occurred in Bhavnagar. The subsequent bringing of the money to Bombay would then be the Bombay Mills' own money, not taxable under the section. - The judgment in Keshav Mills Ltd. v. Commissioner of Income-tax, which held that remittance or transmission of income after receipt does not constitute a new 'receipt', should apply to Section 4(1)(b)(iii) as well, as income can only be received once. Revenue's contentions: - Even if there was a substitution of debtors, the money was received by the assessee himself in Bombay, as the assessee had to advance the money to the Bombay Mills to become their creditor. - As soon as the Bombay Mills credited the amount to the assessee, there was a notional receipt by the assessee and an advance by him to create the debt.

Which sections of the Income-tax Act were involved?

Section 4(1)(b)(iii),Section 4(1)(a)

AI-generated summary — verify with the full judgment below

3 S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME-TAX, BOMBAY v. DHARAMDAS HARGOVINDAS. (P. B. GAJENDRAGADKAR, A. K. SARKAR and K. N. WANCHOO, JJ.) 731 Income Tax-Income already recehed outside taxable territory- Brought into or received in taxable territory--Liability to tax-If must be first receipt in taxable territory-Income-tax Act, I922 (II of I922). S. 4 (I)(b){iii).

The assessee, resident in British India, had some money in deposit with a concern in Bhavnagar, outside British India. On April 7, r947, he transferred part of it to a concern in Bombay.

He was assessed to tax on this amount under s. 4(1)\b)(iii) of the Income-tax Act. The assessee contended that to attract the application of s. 4(1)(b)(lii) the receipt in the taxable tefritory must be the first receipt of income.

Held, th•t the assessee was liable to tax on this amount.

Per Gajendragadkar and Wanchoo, JJ.-Where a person, resident in the taxable territories, has already received, outside the taxable territories, any income etc. accruing or arising to him outside the taxable territories before the previous year brings that income into or receives that income in the taxable territori

The order continues below.

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