Patrick Spens, Kt., C.J.
1. This is an appeal from the judgment of a Division Bench of the Bombay High Court on a reference under Section 66 of the Indian Income-tax Act, 1922. The High Court granted a certificate under Section 205 of the Constitution Act, because the main question raised by the reference related: to the validity of Section 4 A(c) and 4(1)(b)(ii) of the Income-tax Act. No objection has been taken to the maintainability of this appeal.
2. The reference arose out of the assessment of the appellant company to income-tax for the year 1939-40, the accounting year being 1938-39. It is common ground that during the accounting year the appellant company had an income of over seventeen lakhs from British India and over seven and a half lakhs from without British India. Under Section 4(1)(b) of the Income-tax Act, the 'total income' in respect of which any person is assessable for any year is calculated in different ways according as the person is 'resident in British India' or 'not resident in British India.' If the person is resident in British India, the total income includes not only income, profits and gains actually accrued or deemed to accrue in British India but also income accruing or arising to him without British India during the year. Residence in India for the purpose of the Act is defined in Section 4 A, which is one of the sections introduced into the Income-tax Act by the legislation of 1939. Clause (a) of the section defines 'residence' with reference to individuals, Clause (b) with reference to undivided families, firms and other associations of persons, and Clause (c) with reference to companies. As the appellant is a company, this is the clause relevant to the present case. It provides two tests-(1) whether the control and management of the affairs of the company is situated wholly in British India, or (2) whether its income arising in British India in the year in question exceeds its income arising without British India in that year. The appellant company does not satisfy the first test, because the control and management of its affairs is said to be in the United Kingdom. It however holds a 14/32 share in the firm of Messrs. Wallace and Co. carrying on business in Bombay. The other partners, as per the partnership deed of 1935, were seven individuals therein named. The income of seventeen lakhs and odd derived by the appellant from British India was made up of the four following items:
(1) Rs. 8,76,266, being its share in the profits of Messrs Wallace and Co.;
(2) Rs. 18,197, being its share of dividends and interests received from that firm;
(3) Rs. 8,59,428, dividends received from other investments in British India; and
(4) Rs. 31,940, interest from other investments in British India.
As this income admittedly exceeded the appellant's income from without British India (which was only about seven and a half lakhs), the Income-tax authorities treated the case as one falling under the second part of Section 4A(c), and as a consequence they applied Section 4(1)/(b) of the Act, with the result that tax has been assessed on the appellant's total income of over twenty-five lakhs.
3. The appellant objected to the inclusion in the assessment of its income from without British India and contended that the provisions of the Indian Income-tax Act were ultra vires the Indian Legislature in so far as they authorised the inclusion of such income in the assessment. This is the principal question in the case and forms question No. (2) in the reference. The first question is nothing more than an application to the facts of the case of the answer to the second question; it does not require separate discussion. The third question in the reference has no substance and it was admitted before us that the amended provision was applicable to the assessment in question, because 1939-40 was the assessment year though the figures have to be taken from the income for 1938-39. One other question in the reference, question No. (4), raises a question of procedure, to which it will be convenient to refer later.
4. Before the High Court and in the grounds of appeal to this Court, a grievance seems to have been made that certain other questions should also have been raised, so as to bring out clearly the points in dispute between the parties. During the arguments before us, it was conceded by counsel for the appellant that all that he desired to put forward on behalf of the appellant could be urged on the basis of the questions as they now stand. It is therefore unnecessary to refer further to this complaint.
5.Relying on some of the decisions interpreting the word 'residence' in the English Income-tax Act, counsel for the appellant contended that the second of the tests adopted in Section 4A(c) of the Indian Income-tax Act was wholly artificial and unwarranted by established principles and that it had been so framed only as a device to give the Indian Legislature a jurisdiction which it would not otherwise possess. The appellant company, it was said, did not 'reside' here in any of the known senses of the term, and as its income from without British India did not ex hypotkesi accrue here and it was not brought here, it was urged that it was beyond the power of the Indian Legislature to impose a tax on that income. It was argued that the Legislature could only tax persons resident here or income accrued, due or received here, and that any attempt to go further would make the Act illegally extra-territorial in its operation. It was contended on behalf of the respondent that even according to the English decisions, the definition of 'residence' in respect of a company was to a certain extent artificial and that it was open to the Legislature to adopt whatever definition it thought fit. If the matter had stood on Section 4A(c) alone, this would undoubtedly be so. But Section 4A(c) is only a step towards the introduction of the measure of taxation laid down in Section 4(1)(b), and though each of these provisions taken by itself may be unobjectionable, their combined operation is undoubtedly to assess the appellant to tax in respect of all its income from without British India. Counsel for the respondent conceded that it is from this point of view that the validity of the provision must be judged. But he maintained that even on this basis the objection to the validity of the law was untenable-(1) because the impugned provisions were not really extra-territorial in their operation, and (2) because the extra-territorial operation, even if there was any, was no ground for the invalidation of the provisions.
6. We agree with the respondent's contention that the mere fact that the Indian Legislature, has adopted a test of 'residence' different from that obtaining in England is not by itself of much consequence. The course of decisions in England has attempted to give effect to what was conceived to be the policy of the English Income-tax law, in the light of the changing conditions and methods of carrying on business there. These decisions were partly based upon certain clauses in the English Act which limited the significance of the word 'residence' in that Act, and gave some guide in considering whether a person did or did not come within the words 'residing' in the United Kingdom. vide : Attorney-General v. Alexander (1874) L.R. 10 , Reference has no doubt been made now and then to grounds on which that system of taxation could be justified, as for instance when it was said that a person resident in England or carrying on business in England enjoyed the benefit of the security and protection afforded to him by the State in England and that it was1 therefore not unreasonable to bring even his foreign income into account in assessing him to income-tax. But considerations like these cannot be erected into a rule of law limiting the taxing power of the State to those particular cases.
7. We cannot accede to the argument that the amendment of the Indian Income tax Act in 1939 introduced the test now in question merely as a device to give the Indian Legislature a jurisdiction which it would not otherwise possess. It was only a machinery provision which was adopted as a convenient mode of extending to this class of assessees a particular set of provisions contained in the Act for the calculation of their assessable income. The objection, if any, must be to the imposition of the liability itself and not to the manner in which the provisions imposing such liability have been drafted.
8. Relying upon certain observations in Croft v. Dunphy  A.C. 156 counsel for the appellant contended that the powers conferred on the Indian Legislature by the Constitution Act must be interpreted in the light of the prevailing 'legislative practice' in England. It may be that any particular expression used in a Parliamentary enactment relating to the constitution of a subordinate legislature will carry the connotation which by well-established usage it has acquired in English law or politics; and it may also be that if certain powers have long been understood in England to be incidental to or associated with certain other powers, words conferring the one will be understood as carrying the other as well. But we cannot interpret the observations in Croft v. Dunphy as implying that the Indian Legislature must frame its income-tax legislation on the same lines or on the same bases as have been adopted or found convenient in England. The imposition and assessment of the tax must necessarily vary according to the exigencies of Public Finance here and the methods of doing business found to prevail in this country. Even as regards persons resident in this country, the Indian Legislature did not, till very recently, think it worthwhile or find it necessary to take their income from without British India into account, in assessing them to income-tax, except to the extent to which such income had been brought into this country. If the conditions of today require or justify other methods of taxation, we see no warrant for holding that the State here could only adopt the methods prevailing in England.
9. As regards the contention that the impugned provisions are extra-territorial in their operation and accordingly beyond the powers of the Indian Legislature, we are of the opinion that taking the scheme as a whole they are not in their operation extraterritorial in the strict legal sense of that term. The Legislature has not attempted to regulate, punish or directly deal with any act done beyond the territorial limits of British India nor does it seek to impose a liability on property situate outside its jurisdiction. It was conceded on behalf of the appellant that when a person is resident in British India any legislation which brings his foreign income into account in assessing him to income-tax will not be extra-territorial. This illustration establishes (1) that the mere fact of the accrual of the income abroad is not conclusive, and (2) that when the cases refer in justification of such taxation, to the protection which a person enjoys by his residence in a particular country, the benefit of that protection is not limited to the income accrued or received in that country. Where the connection of the assessee with a particular country is not founded upon residence but arises out of business operations, it may be a question of degree whether the connection is slender or intimate, but it can nonetheless be as factual a connection as a connection based on residence. Many systems of law have enacted that if a person resides in a country for six months, he must be deemed to be 'resident' there for purposes of income-tax though during the rest of the year he might have resided elsewhere. A person who receives a substantial business income from a country may well be regarded as receiving the protection of its laws and administration in the same degree as a person who resides there or carries on business there; and if a person resident in a country for six months can be taxed even in respect of his foreign income earned, it may be, during the remaining six months, it is difficult to see anything inherently objectionable in adopting the same basis when a person derives more than half his total income from business in a particular country. It is the person who is subjected to taxation in either case and his connection with the taxing country is as substantial in the one case as in the other, to warrant both cases being treated alike.
10. Decisions of the English Courts afford little guidance on this question, in view of the difference in the scheme of taxation between the two countries. But some of the Australian decisions to which reference has been made in the judgment of this Court in Governor-General in Council v. Raleigh Investment Co., Ltd.  F.C.R. 229 afford some guidance. The facts in the Raleigh Investment Co. case were no doubt different and the decision was based on the ground that the source of the income there was British Indian. But this Court there adopted the principle laid down in the Australian decisions that once 'any connection' with a particular State is shown, it creates a nexus between the State and the individual, so as to make that individual subject to the taxing power of that State. The provision in the impugned clause that the company will be regarded as resident in British India only when its British Indian income exceeds its income arising without British India, ensures that the connection between the assessee and the State is real and not illusory. Observations like those in Commissioner of Taxes v. Union Trustee Co. of Australia A.C. 258 do not bear upon the present case, because on a construction of the relevant statute their Lordships there found that the fact on which territorial jurisdiction was founded by that statute was not the personal residence of the tax-payer but the 'local situation of the source of income.' We are accordingly of the opinion that the impugned provisions of the Indian Income-tax Act cannot be held to be extra-territorial in their operation.
11. The second contention urged on behalf of the respondent that even if these provisions are in any measure extra-territorial in their effect, that is not a ground for holding them to be ultra vires the Indian Legislature is supported by the decision of this Court in the Raleigh Investment Company case. We have nothing to add to the reasons there set out in support of that conclusion.
12. The fourth question in the reference raises a question of procedure, viz. the jurisdiction of the particular officer to assess the appellant. Section 64 of the Act provides that where an assessee carries on a business at any place he shall be assessed by the Income-tax Officer of the area in which that place is situated and that in all other cases an assessee shall be assessed by the Income-tax Officer of the area in which he resides. The High Court thought that the answer to question No. (4) was plain. 'The assessee' it is said 'has been found to be a partner in the firm of Wallace and Company and the assessment was made by the Income-tax Officer for the area in which Wallace and Company carry on business.' As the point has been pressed before us, it is necessary to deal with it in some more detail.
13. The following are the facts material to this question. On January 29, 1940, Wallace and Company acting on behalf of Wallace Brothers and Co., Ltd., filed the usual return of income. This was drawn up in accordance with the pre-existing practice. But as Section 4A(c) had come into operation by that time, the Income-tax Officer, Companies Circle, by letter dated February 7, 1940, called for a statement of the total income of Wallace Brothers and Co., Ltd., 'to enable me to determine whether the company is resident or non-resident as per Section 4A(c) of the Income-tax Amendment Act, 1939.' By letter dated February 20, 1940, Wallace and Company took exception to this view and stated that they had no copy of the profit and loss account of Wallace Brothers and Co., Ltd.; when the Income-tax Officer insisted on having the information, they re-submitted the return of Wallace Brothers and Co., Ltd., reiterating their contention as to the non-liability of the income arising outside British India of Wallace Brothers and Co., Ltd., but they added, 'to comply with your request we enclose copy of the balance-sheet and profit and loss account of Wallace Brothers and Co., Ltd., for the year ended July 31, 1938, but we do so under protest and without admitting in any way a liability to taxation on the world income.' It is on the materials thus furnished that one Mr. Singh who was then Additional Income-tax Officer, Companies Circle, made the Assessment Order dated February 12, 1941. The assessee is there shown as Wallace Brothers and Co., Ltd., through Messrs. Wallace and Company, 9, Wallace Street, Bombay, and it is treated as a 'resident company.' Against this order, there was an appeal to the Appellate Assistant Commissioner signed by Wallace and Company as agents, under Section 43, of Wallace Brothers and Co., Ltd., and as that officer confirmed the assessment, there was a further appeal to the Appellate Tribunal. The objection of non-compliance with Section 64 was for the first time raised before the Appellate Tribunal. That Tribunal was of the opinion that the assessment was in conformity with both Clauses (1) and (2) of Section 64, because the assessee company wa9 carrying on business in Bombay as a partner in Messrs. Wallace and Company and was also by reason of Section 4A(c) deemed to be resident in Bombay.
14. As regards the ground of residence in Bombay, counsel for the appellant rightly pointed out that according to Section 4A(c) the question of residence must be determined with reference to each year and that the finding of residence during 1938-39 would not warrant the assumption that when the proceedings for assessment were started early in 1940, the appellant company was resident in Bombay. If this question becomes material, it may be necessary to ascertain whether in 1940 the appellant company could be deemed to have been resident in Bombay with reference to the conditions required by Section 4A(c).
15. It however seems to us open to serious doubt whether the appellant is entitled to raise this question at all and whether it is really a matter for decision by the Court. Clause (3) of Section 64 provides that any question as to the place of assessment shall be determined by the Commissioner or by the Central Board of Revenue. The third proviso to the clause enacts that if the place of assessment is called in question by the assessee, the Income-tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under this sub-section before assessment is made. These provisions clearly indicate that the matter is more one of administrative convenience than of jurisdiction and that in any event it is not one for adjudication by the Court. The second proviso to Clause (3) further enacts that the place of assessment shall not be called in question by an assessee if he has made a return in response to the notice under Sub-section (1) of Section 22, or if he has not made such a return, it shall not be called in question after the expiry of the time allowed by the notice for the making of a return. This confirms us in the view that the scheme of the Act does not contemplate an objection as to the place of assessment being raised on an appeal against the assessment after the assessment has been made. As we have already pointed out, the objection was not raised in the present case even before the Appellate Income-tax Officer but only before the Appellate Tribunal. The fact that the Tribunal nevertheless thought fit to allow the question to be raised and even included it in the reference to the High Court cannot alter the legal position.
16. We however proceed to deal with the objection on its merits. Counsel for the respondent alternatively sought to bring the case under Clause (5) of Section 64, and for this purpose he wished to refer to an order of the Commissioner of Income-tax assigning this particular assessment case to that particular officer. Counsel for the appellant objected to this document being used at this stage as it was not relied on before the High Court or before the Appellate Tribunal. The whole procedure as to the raising of this objection has been irregular, but we prefer to leave that document alone. We concur in the view taken by the High Court that the appellant company has been carrying on business in Bombay and that the assessment was therefore rightly made under Clause (1) of Section 64. Clause (1) of the Partnership Deed relating to Wallace and Company provides that Wallace Brothers and Co., Ltd., and seven other gentlemen therein named shall carry on business in partnership as merchants and commission agents at Bombay. The deed reserves extensive powers to Wallace Brothers and Co., Ltd., in respect of the business. Nothing has been adduced to show that in spite of these recitals and these powers, Wallace Brothers and Co., Ltd., as one of the partners cannot be regarded as carrying on the business. The appellant stated that it was only a sleeping partner and this is repeated in the reference as well as in the judgment of the High Court. With reference to this statement counsel for the appellant drew our attention to certain observations of Lord Parker in Mitchell v. Egyptian Hotels Limited.  A.C. 1022 They were made by way of explanation of the decision in Colquhoun v. Brooks (1889) 14 App. Cas. 493 and they would only show that the appellant company, if it was only a sleeping partner in Wallace and Company of Bombay, could not be regarded as carrying on that business in the United Kingdom.
17. The appeal fails and is dismissed with costs.
18. Leave to appeal to His Majesty in Council granted.