COMMISSIONER OF INCOME-TAX/EXCESS PROFITS TAX, BOMBAY CITY vs. MESSRS. BHOGILAL LAHERCHAND INCLUDING BATLIBOI & CO., BOMBAY

CIVIL APPEAL No. 160/1950Supreme Court[1954] 1 S.C.R. 44418 December 1953Bench: 4 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, GHULAM HASAN, B. JAGANNADHADAS11 pages
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What were the facts?

The assessee, a Hindu Undivided Family (HUF) carrying on business in Bombay, Madras, and the Mysore State, had an accounting period from October 10, 1941, to November 8, 1942. During this period, the Mysore branch purchased goods from the Bombay head office and Madras branch for Rs. 2,45,455. The Income-tax Officer estimated these purchases in British India at Rs. 3,00,000 and the profits on their sale in Mysore at Rs. 75,000. Applying Section 42(1) of the Indian Income-tax Act, half of these profits, amounting to Rs. 37,500, were deemed to accrue or arise in British India due to the business connection. The Income-tax Tribunal, following a Bombay High Court decision, held that Section 42(1) was not applicable to resident assessees. The High Court, on reference, answered the question in the negative.

What did the Supreme Court hold?

The Supreme Court held that the Income-tax Officer was right in applying Section 42(1) of the Indian Income-tax Act. The Court found that Section 42(1) covers cases of both residents and non-residents. The reasoning was based on the structure of the sub-section, which was divided into two parts. The first part, dealing with income accruing or arising through or from any business connection in the taxable territories, was not restricted to non-residents. The first proviso, referring to the person entitled to the income not being a resident, further indicated that the main part of the sub-section applied to residents as well. The Court dissented from the Bombay High Court's decision in Commissioner of Income-tax v. Western India Life Insurance Co. Ltd., stating that the significance of the alteration in the structure of sub-section (1) was not properly appreciated in that case. The Court also noted that marginal notes cannot be used to construe a statute and that the chapter heading was not meant to restrict the plain terms of the enactment. The appeal was allowed, and the question referred to the High Court was answered in the affirmative.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Officer was right in applying the provisions of section 42(1) of the Indian Income-tax Act and holding that Rs. 37,500 were profits deemed to accrue in British India and in including a portion thereof in the assessment. Assessee's contention: The assessee argued that Section 42 of the Indian Income-tax Act was applicable only to non-residents and not to a resident assessee like itself. This contention was supported by the Income-tax Tribunal and the High Court. Revenue's contention: The Revenue contended that Section 42(1) of the Act applies to both residents and non-residents. They argued that the High Court's decision in Commissioner of Income-tax v. Western India Life Insurance Co. Ltd. was incorrect and that the plain words of the section should be given effect to. They also argued that the deletion of the words 'any person residing out of British India' from the section before 1939 indicated an intention to include residents.

Which sections of the Income-tax Act were involved?

Section 42(1),Section 66(1),Section 4(1)(b)(i),Section 14(c)

AI-generated summary — verify with the full judgment below

1953 Akhlakali Ha.Jatalli v. Th•Stateof Bombtg. 1953 Dec.

18.

SUPREME COURT REPORTS [1954] charged accepted and the appellant acquitted and discharged and forthwith set at liberty. Appeal dllowed. Agent for the respondent : G. H. Rajadhyaksha. COMMISSIONER OF INCOME-TAX/EXCESS PROFITS TAX, BOMBAY CITY v. MESSRS. BHOGILAL LAHERCHAND including BATLIBOI & CO., BOMBAY. [MEHR CHAND MAHAJAN, S. R. DAs, GHULAM HASAN and JAGANNADHADAS JJ.] Indian Income-tax Act (XI of 1922), s. 42(1)-Scope of. A Hindu undivided family was carrying on business in Bom- bay, Madras and the Mysore State, being treated as a single asses- see and its relevant accounting period was 10th October, 1941, to 8th November, 1942. During this period, the Mysore branch purchased goods from the Bombay head office and the Madras branch of the value of Rs. 2 lakhs odd. The Income- tax Officer estimated these purchases of the Mysore branch in British India at Rs. 3 lakhs and its profits at Rs. 75,000 on the sale of these goods )n Mysore. In view of the provisions of s. 42 of the Indian Income-tax Act, half of this profit, i.e., to the extent of Rs. 37,500, was deemed t

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