MCGREGOR & BALFOUR LTD. vs. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

CIVIL APPEAL No. 265/1956Supreme Court1959 INSC 2116 March 1959Bench: 3 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, J.L. KAPUR, M. HIDAYATULLAH S.C.R. SUPREME COURT REPORTS10 pages
AI SummaryDismissed

What were the facts?

McGregor & Balfour Ltd. (the appellant), a company incorporated in the United Kingdom with its head office in Calcutta, carried on business in both England and India. For previous years, it paid excess profits tax in both countries and claimed deductions for these payments in its Indian income-tax assessments. In the assessment year 1947-48, the company received a repayment of Rs. 2,31,009 from the excess profits tax paid in England. The Indian Income-tax authorities, acting under Section 11(14) of the Indian Finance Act, 1946, included this repayment in the company's taxable profits for the assessment year 1947-48. The company's appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed. The Tribunal referred questions of law to the Calcutta High Court.

What did the Supreme Court hold?

The Supreme Court held that the amount received as repayment of excess profits tax was rightly taxed. The Court reasoned that Section 11(14) of the Indian Finance Act, 1946, created a legal fiction deeming the repayment amount as 'income' for the purposes of the Indian Income-tax Act. This 'income' was to be treated as income of the previous year during which the repayment was made. The Court found that this provision created a liability irrespective of general income-tax law provisions and made the distinction between income within and without taxable territories unnecessary. The Court relied on English cases like Eglinton Silica Brick Co. Ltd. v. Marriaman, A. & W. Nesbitt Ltd. v. Mitchell, and Kirke's Trustees v. The Commissioners of Inland Revenue, which interpreted similar provisions. The Court agreed with the High Court's affirmative answer to the first question. The second question was not pressed before the Supreme Court. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was right in holding that the sum of Rs. 2,31,009 was income of the assessee during the assessment year 1947-48 and liable to be assessed under the Indian Income-tax Act, 1922, relying on Section 11(14) of the Indian Finance Act, 1946. 2. If so, whether this amount could be taken into consideration for determining the residence of the assessee under Section 4A(c)(b) of the Indian Income-tax Act, 1922. Assessee's contentions: - Section 11(14) of the Finance Act, 1946, was not applicable to the assessment year 1947-48 as it was not incorporated or repeated in subsequent Finance Acts. (This contention was not seriously pressed). - The repayment was not within the taxable territory, and therefore, could not be taxed. The High Court erred in construing Section 11(14) as a charging section. Revenue's contentions: - Section 11(14) created a charge by itself, and the fiction therein was sufficient to bring the amount to tax, irrespective of the place of income origin.

Which sections of the Income-tax Act were involved?

Section 11(14),Section 12(2),Section 28(1),Section 4A(c)(b),Section 66,Section 66A

AI-generated summary — verify with the full judgment below

(2) S.C.R. SUPREME COURT REPORTS 355 MCGREGOR & BALFOUR LTD. v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL (B. P. SINHA, J. L. KAPUR and M. HIDAYATPLLAH, JJ.)

Income-tax-Company carrying on business in England and India-Refund of excess profits tax paid in England-If can be taxed in India-Indian Finance Act, Ig46, s. II(4).

The appellant carried on business in England and in India.

For the previous years it paid excess profits tax in both countries and it obtained deduction of the amounts so paid from its profits and gains for the purposes of the Indian Income-tax Act. In the assessment year 1947-48 it obtained a repayment of Rs. 2,31,009 out of the excess profits tax paid in England. The Income-tax authorities acting under s. n(14), Indian Finance Act, 1946, included this amount received in England in the taxable profits of the appellant. The appellant contended that the repayment not being within the taxable territory it could not be taxed.

Held, that the amount received as repayment of the excess profits tax was rightly taxed. Under s. n(14) the amount of re- payment was deemed to be ' income ' for purposes of the Indian Income-tax Act and that 'income'

The order continues below.

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