ANGLO-FRENCH TEXTILE CO. LTD vs. COMMISSIONER OF INCOME-TAX, MADRAS.

CIVIL APPEAL No. 11/1952Supreme Court[1954] 1 S.C.R. 52308 December 1953Bench: 3 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, NATWARLAL HARILAL BHAGWATI14 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, Anglo-French Textile Co. Ltd., is a company incorporated in the United Kingdom with its registered office in London. It owned a mill in Pondicherry where it manufactured yarn and cloth. The company appointed Best and Co. Ltd., Madras, as its agents. The manufactured goods were sold mostly in British India and partly outside. For the accounting years 1941 and 1942, sales contracts in British India were entered into there, with deliveries and payments made in British India. For sales outside British India, payments were also received in Madras through the agents. The Income-tax Officer assessed the company as resident in British India for assessment years 1942-43 and 1943-44, taxing profits and gains from both within and outside British India. This was confirmed by appellate authorities. The assessee applied for a reference to the High Court, which referred specific questions.

What did the Supreme Court hold?

The Supreme Court held that in view of the finding of fact that the entire profits were received in India, the assessee was liable to tax under section 4(1)(a), rendering the provisions of section 42(1) irrelevant. Regarding the second issue, the Court held that income received in British India could not be said to wholly arise in British India within the meaning of section 4A(c)(b). Therefore, there should be an allocation of income between the various business operations of the assessee, demarcating the income arising in the taxable territories from that arising outside for the purposes of section 4A(c)(b). The Court affirmed the High Court's answer to the second question, stating that apportionment of income is based on general principles of accountancy and not solely on section 42(3). The appeal was allowed, and the answer to the first question was in the negative, while the answer to the second question was as stated above. The Court directed that each party bear its own costs.

What were the issues?

1. Whether, on the facts and in the circumstances, section 42(1) and (3) of the Income-tax Act, 1922, alone, and not section 4, apply to income accruing or arising to the assessee company in British India and to income attributable to sale proceeds received in British India during the previous year? (Question of law, concerning Sections 4, 42(1), 42(3)) 2. Whether, on the facts and in the circumstances, the entire profits and gains arising to the assessee company in British India should be taken into account for applying the test under section 4A(c)(b), or only that part of the profits attributable to operations in British India after applying section 42(3)? (Question of mixed law and fact, concerning Sections 4A(c)(b), 42(3)) Assessee's Contention (implied from High Court's questions and Tribunal's reference): The assessee likely argued that section 42(1) and (3) were the primary provisions for determining taxability and that apportionment of income was necessary. They may have contended that only income attributable to operations within British India should be considered for the residence test under section 4A(c)(b). Revenue's Contention (implied from High Court's questions and Tribunal's reference): The revenue likely argued that section 4(1) was applicable and that the entire income received in British India was taxable. They may have contended that the residence test under section 4A(c)(b) should consider all profits arising in British India, without apportionment under section 42(3).

Which sections of the Income-tax Act were involved?

Section 4,Section 4(1)(a),Section 4(1)(b)(i),Section 4(1)(b)(ii),Section 4A(c)(b),Section 42(1),Section 42(3),Section 66(1)

AI-generated summary — verify with the full judgment below

S.C.R. SUPREME COURT REPORTS 523 section 10 or took no active part in the proceedings under section 11(2). In the view that we have taken it is not necessary to decide the question whether the High Court was right in not exercising its powers under Order XLI, rule 20, in impleading the creditors as res- pondents to 'the appeal.

For the reasons given above we allow this appeal, set aside the judgment of the High Court and remand the case to that court for hearing the appeal in accord- ance with law on its merits. If the High Court thinks fit that the presence of any creditors would help the court in arriving at a true decision of the matter it in its discretion may give notice to the creditors of the date of hearing. We leave the parties to bear their own costs of this appeal. Appeal allowed. Agent for the appellant : C. P. Lal. Agent for respondent No. 5 : S. S. Shukla. ' ANGLO-FRENCH TEXTILE CO. LTD. ti. COMMISSIONER OF INCOME-TAX, MADRAS. !MEHR CHAND MAHAJAN, S. R. DAs, VIVIAN BosE and BHAGWATI JJ.] Income-tax Act, 1922, ss. 4 (1) (a), 4A (c) (b), 42 (1) and (3) -Foreign cornpany-A1anufacture of goods outside British India --Sale of goods and receipt

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 4

All 1,127 judgments and leading authorities on Section 4 →

Recent GST High Court judgments

Search GST case law →