Skip to content


In Re: Byramshaw K. Illava - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai
Decided On
Case NumberIncome-tax Reference No. 10 of 1943
Judge
Reported in(1944)46BOMLR129
AppellantIn Re: Byramshaw K. Illava
Excerpt:
.....income-tax act (xi of 1922), section 18(3d)-finance act of 1939, section 6(4) (b)-non-resident assessee-income from securities-super-tax-deduction at source.;in order to determine whether section 18 (3d) of the indian income-tax act, - 1922, operates, the total world income of a non-resident assessee has to be considered. when, however, the section operates, the rate applicable under it in respect of the income of the non-resident shareholder in the, assessment year 1939-40 means the rate applicable to the assessable income, and in a case falling under a. 6(4) (6) of the finance act, 1939, is the rate applicable for the year 1938 instead of the year 1939.;hence, where the total world income of a non-resident assessee is rs. 2,43,119, out of which his interest on securities amounts to..........to de-duct at the time of payment of any dividend from the company to the shareholder in that year super-tax at such rate as the income-tax officer may determine as being the rate applicable in respect of the income of the shareholder in that year.' now, that has to be read for the present purpose in conjunction with the finance act of 1939, section 6(4) (b), which provides :(4) notwithstanding anything contained in sub-section (i) or sub-section (2) where more than half of the total income of any individual or hindu undivided family consists of income from salaries, interest on securities or dividends in respect of which the individual or hindu undivided family is deemed, under the provisions of section 49b of the indian income-tax act, 1922, to have paid income-tax imposed in.....
Judgment:

John Beaumont, Kt., C.J.

1. This is a reference made by the Income-tax Tribunal, the question raised being :

Whether, in the circumstances of the case, it was rightly held that the rates of super-tax prescribed by the Indian Finance Act, 1939, applied to the assessee's income for super-tax for the purpose of his assessment for the year 1939-40

The question really involves whether Section 6(4) (b) of the Finance Act of 1939 is applicable to the case of the assessee.

2. The facts found are that the total world income of the assessee is Rs. 2,43,119 ; his interest on securities is Rs. 44,364, and his other income in British India is negligible. It is also found that the assessee is a non-resident.

3. Under the amended Income-tax Act, which came into force on April 1, 1939, Section 17 lays down the method of calculating the assessable income of a non-resident. Section 18 deals with the subject of deduction at the source, and the material sub-section for the present case is (3D), which provides :

Where the Income-tax Officer has reason to believe that any person, who is a shareholder in a company, is resident out of British India and that the total world income of such person will in any year exceed the maximum amount which is not chargeable to super-tax under the law for the time being in force.

(and those conditions are applicable to the case of the present assessee)

he may, by order in writing, require the principal officer of the company to de-duct at the time of payment of any dividend from the company to the shareholder in that year super-tax at such rate as the Income-tax Officer may determine as being the rate applicable in respect of the income of the shareholder in that year.' Now, that has to be read for the present purpose in conjunction with the Finance Act of 1939, Section 6(4) (b), which provides :

(4) notwithstanding anything contained in Sub-section (i) or Sub-section (2) where more than half of the total income of any individual or Hindu undivided family consists of income from salaries, interest on securities or dividends in respect of which the individual or Hindu undivided family is deemed, under the provisions of Section 49B of the Indian Income-tax Act, 1922, to have paid income-tax imposed in British India, or consists of income falling under more than one of those heads-'(and it is admitted that the assessee's case falls within that part of the subsection.) Then comes Clause (b) :

In cases in which super-tax has been deducted under the provisions of Section 18 of the said Act,

and it has not been deducted in this case,

or would have been so deductible had the Indian Income-tax (Amendment) Act, 1939, come into force on the first day of April 1938, the rates of super-tax for the year beginning on the first day of April 1939, shall, for the purposes of Section 55 of the Indian Income-tax Act, 1922, be the rates of super-tax which were imposed for the year beginning on the first day of April 1938, in respect of incomes of individuals or Hindu undivided families, as the case may be.

So that, what it comes to is that in the cases covered by that sub-section the rates of super-tax for the year beginning with April 1, 1939, which is the year with which we are dealing in this case, shall be the rates applicable for the year 1938.

4. The Income-tax Officer rejected the assessee's claim that his case fell under Section 6(4) (b) of the Finance Act, but in appeal the Assistant Commissioner thought that the section covered the case, and from his decision the Commissioner of Income-tax appealed to the Tribunal, and the Tribunal reversed the decision of the Assistant Commissioner. They held that all the conditions specified in Section 6(4) (b) applied to the assessee, but that there was no machinery by which the Income-tax Officer could determine the rate of super-tax which was to toe imposed for the year 1938. In effect their decision really involves that Section 6(4) (b) has no operation at all.

5. The contention of the Commissioner in this' Court has been put on a slightly different ground. He relies on Sub-section (5) of Section 6 of the Finance Act, which provides :

In respect of income to which Sub-section (4) applies, the provisions of Section 17 of the Indian Income-tax Act, 1922, shall apply to the assessment to be made for the year beginning on the first day of April 1939, as though the Indian Income-tax (Amendment) Act, 1939, had not been passed.

The argument is that Section 17 of the amended Act is the only section under which the Income-tax Officer can determine the rate in the case of a nonresident, and that the effect of Sub-section (5) is to eliminate Section 17 of the amended Act, because the whole Act is to be deemed not to have been passed, and, therefore, it is said that there is no machinery under which the Income-tax Officer can determine the rate to which a non-resident is chargeable. That seems a very odd construction, because Sub-section (5) only comes into operation in respect of income to which Sub-section (4) applies, and if the Commissioner's argument is right, the effect of Sub-section (5) is to nullify Sub-section (4) (b). Readying Sub-section (4) (b), apart from Sub-section (5), I do not think there is any serious difficulty. The total world income has to be considered, in the first instance, in order to determine whether Section 18 (3D) operates. But when it operates, it seems to me that the rate applicable under that section in respect of the income of the shareholder in that year, means the rate applicable to the assessable income, and in a case falling under Section 6(4) (b) of the Finance Act the rate would be the rate applicable for the year 1938, instead of the year 1939. So that, all that the Income-tax Officer has to do is to say at what rate he would have assessed a man on a British Indian income of Rs. 44,364 in the year 1938, and that seems to me to be the rate at which he would have to instruct the Officer of the Company to deduct super-tax. What the effect of Sub-section (5) is, I really do not know. It is curiously worded, because it says that the provisions of Section 17 shall apply to the assessment to be made for the year beginning on April 1, 1939, as though the Indian Income-tax (Amendment) Act, 1939, had not been passed. But Section 17 of the unamended Act has nothing to do with the assessment of a non-resident; it is only Section 17 of the amended Act which is relevant to the subject. If the amended section had not been passed, the old section would not apply, because it is dealing with a different subject. I am rather inclined to think that the draftsman intended that the provisions of the amended Section 17 should apply, as though the other provisions of the amended Act had not been passed, and that he overlooked the fact that Section 17, which he was directing to be applicable, was itself part of the amended Act. But whatever the effect of Sub-section (5) may be, I am not prepared to agree with the view of the Tribunal that the Income-tax Officer cannot specify the rate. He must either specify the rate which would have been applicable under the old Act in respect of British Indian income in the year 1938, or he must arrive at the rate by applying the provisions of the amended Section 17. But in either case he can specify the rate, and, therefore, the assessee's case falls within Section 6(4) (6).

6. The answer to the question raised will be in the negative.

7. The Commissioner to pay costs, and refund the deposit of Rs. 100 to the assessee.

Chagla, J.

8. I agree, The question that arises for our determination is whether the assessee is liable to pay super-tax at the rate prescribed by the Finance Act of 1939 or by the Finance Act of 1938. Now the Finance Act of 1939 confers upon the assessee certain rights with' regard to the payment of income-tax and super-tax if the conditions set out there are complied with, and those rights are that under certain circumstances income-tax would be chargeable at the rates imposed for the year 1938 and also super-tax at the rates prescribed by the Finance Act of 193S. The primary condition that has got to be complied with is that more than half of the total income of the assessee should consist of income from salaries, interest on securities or, dividends. In the case before us there can be no dispute that more than half of the total income of the assessee-in fact practically the whole of his total income, i.e. Rs. 44,364, is from the source specified in Section 6, Sub-section (4), of the Indian Finance Act of 1939. Therefore the question that arises is whether under Section 6, Sub-section (4) (b), of that Act, the assessee is entitled to have the super-tax paid at the rate prescribed by the Finance Act of 1938. In order that he should be so entitled, it is necessary under Section 6, Sub-section (4) (b), of the Finance Act of 1939, that the super-tax should have been deducted under the provisions of Section 18 of the Indian Income-tax Act or would have been so deductible had the Indian Income-tax (Amendment) Act, 1939, come into force on April 1, 1938. It is common ground that in fact no super-tax had been deducted under Section 18 of the Indian Income-tax Act. So the only question that remains to be considered is : would super-tax have been deductible if the Indian Income-tax (Amendment) Act of 1939, instead of coming into force in 1939, had come into force on April 1, 1938 Therefore we have got to construe Section 18 of the amended Income-tax Act of 1939 on the basis of the assumption that that Act was in force in 1938. The relevant sub-section of Section 18 is Sub-section (3D) which runs as follows :-

Where the Income-tax Officer ha9 reason to believe that any person, who is a shareholder in a company, is resident out of British India and that the total world income of such person will in any year exceed the maximum amount which is not chargeable to super-tax under the law for the time being in force, he may, by order in writing, require the principal officer of the company to deduct at the time of payment of any dividend from the company to the shareholder in that year supertax at such rate as the Income-tax Officer may determine as being the rate applicable in respect of the income of the shareholder in that year.

Therefore the first question to determine in order to decide whether that sub-section is applicable or not is whether the total world income of the assessee exceeded the maximum amount which was not chargeable to super-tax under the law for the time being in force, and the maximum amount not chargeable to super-tax in 1938 was Rs. 25,000.

9. In the case before us the total world income of the assessee was Rs. 2,43,119 which exceeded the maximum amount not chargeable to super-tax. If that condition is complied with, then the section provides that the Income-tax Officer may require the principal officer of the company to deduct at the time of payment of any dividend from the company to the shareholder in that year super-tax at such rate as the Income-tax Officer may determine as being the rate applicable in respect of the income of the shareholder in that year. It is the latter part of this sub-section that really creates a difficulty. What Mr. Setalvad has argued on behalf of the Income-tax Commissioner is that in 1938 there was no machinery in existence whereby the rate applicable to super-tax in regard to the world income could be determined. The only machinery whereby such a rate could be ascertained was the machinery set up by Section 17 of the amended Act; and, according to Mr. Setalvad, as undei the Finance Act by Section 6, sub.-s. (5), Section 17 of the amended Income-tax Act has not to be taken into consideration in determining the rates of super-tax applicable under Section 18, no machinery was available whereby the rates of supertax in 1938 could be determined. Now I do not really think that the absence of machinery provided by Section 17 of the amended Act creates any difficulty whatsoever. We have got to assume as if the amended Act of 1939 came into force in 1938. Therefore the position is that as soon as the Income-tax Officer came to the conclusion that the total world income of the assessee exceeded Rs. 25,000, he had to apply to the assessable British Indian Income those rates which were in force in 1938. The Finance Act of 1938 has prescribed the rates of super-tax, and for the purposes of Section 18 (3D) read with Section 6(4) of the Finance Act of 1939, the rates the Income-tax Officer has got to determine are not the rates arrived at by making use of the machinery set up by Section 17, but by ascertaining the rates as prescribed in the Finance Act of 1938.

10. I agree with the learned Chief Justice that Sub-section (5) of Section 6 of the Finance Act of 1939 is not at all happily worded, and it is really difficult to understand why if the only reason for enacting that sub-section was to make it possible to arrive at the rates of super-tax without the machinery provided by Section 17 of the Income-tax Act, that sub-section should have been so clumsily worded. But, even assuming, as the learned Chief Justice has pointed out, that it was open to the Income-tax Officer to avail himself of the machinery provided by Section 17, there would be even less difficulty in applying the provisions of Section 18 (3D) of the Income-tax Act. In either view of the case it is impossible to say that super-tax would not have been deductible under Section 18 (3D) of the Income-tax Act if the Income-tax Act had come into force on April 1, 1938, instead of in 1939; and, as I have said, the sole question is, could or could not super-tax have been deductible if the Act had come into force on April 1, 1938 In my opinion super-tax could have been so deductible and, therefore, the assessee is entitled to have the super-tax deducted at the rate prescribed by the Finance Act of 1938 and not at the rate prescribed by the Finance Act of 1939.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //