Amberson Marten, Kt., C.J.
1. The two questions submitted to us, under Section 66 of the Indian Income-tax Act, 1922, are as follows:-
1. Whether the interest received by the Assesses at Hyderabad (Deccan) on Government of India Promissory Loan Notes enfaced for payment at Hyderabad (Deccan) Treasury can be said or deemed to accrue or arise or to be received in British India within the meaning of Section 4(1) of the Act ?
2. Whether the said interest is liable to be assessed to super-tax?
2. Admittedly, the second question depends on the answer to the first having regard to Section 56 of the Act.
3. The amended Exhibit F is a specimen copy of one of the Promissory Notes of the four and a half per cent, loan 1955-60 in question. This Note was originally issued by the Government of India to the Imperial Bank of India in British India, and is dated September 15, 1928. The principal and interest were both payable at Calcutta, the former between 1955 and 1960, and the latter half-yearly at four and a half per cent, per annum. The Promissory Note was then assigned to the assessee by the bank and was duly endorsed in his favour. It was also ' enfaced '- as it is called-by a direction that the interest was payable at Hyderabad (Deccan), This enfacement was effected under certain statutory rules framed by virtue of the Indian Securities Act 1920. It had the effect of making the interest thenceforth payable at the Hyderabad Residency Treasury, which, though an office of the Government of India, has now been expressly found by the Commissioner to be situate outside British India. No point has been taken that the date of enfacement, viz., August 7, 1928, is prior to that of the Promissory Note itself. Admittedly, Exhibit P is only a specimen, as the original Promissory Notes have since been sold by the assessee and parted with. So I pass that by. Accordingly, we have to deal with a case where at the material dates the debt was contracted in British India, and the principal was repayable in British India, but the interim interest on such principal was payable outside British India.
4. Turning next to the Indian Income-tax Act, 1922, Section 4(1) runs as follows :
Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in Section 6, from whatever source derived, accruing, or arising or received in British India, or deemed under the provisions of this Act to accrue, or arise, or to be received in British India.
5. Section 4(2) deals with certain business profits accruing or arising outside British India which are nevertheless to be deemed to have accrued or arisen there. But that sub-section does not apply here. Section 6 makes ' interest on securities ' taxable, and b. 8 provides that the tax shall be payable by an assessee under that heading ' in respect of the interest receivable by him on any security of the Government of India or of...etc.' Section 18(1) provides that as regards interest on securities, tax shall be leviable in advance by deduction at the time of payment. Section 18(4) provides that all sums so deducted ' shall, for the purpose of computing the income of an assessee, be deemed to be income received.' In the present case tax was deducted as provided by this section.
6. It will be seen that the more important words in Section 4(1) are ' all income...as...comprised in Section 6, from whatever source derived, accruing, or arising or received in British India.' Now in the first place I think it clear that the use of the word ' or ' means what it says, and that accordingly the two expressions 'accruing or arising' are different from the expression ' received' and are intended to catch income which would not necessarily be received in British India. I also think that these expressions ' accruing or arising' indicate some origin or source of growth for the income in question. Thus Murray's Dictionary defines ' accrue ' to mean '(inter alia) Arise or spring as a natural growth especially interest. To grow or arise as the produce of money invested.' Some analogy may also be found from Lord Cairns' well-known description of an English Railway Debenture as being charged only on the produce of ' a fruit-bearing tree,' viz., the tolls and fares only of the capital undertaking. (See Gardner v. London Chatham and Dover Railway Co. (No. 1 (1866) L.R. 2 C. A 201. And indeed in this very Clause 4(1), we have the earlier words ' income...from whatever source derived.'
7. Now the interest we have to deal with clearly arose or sprang from principal moneys invested in British India and repayable in British India. Its amount was calculated as a percentage on those principal moneys, and its source was those principal moneys. And if this interest had also been payable in British India, then normally it would have been caught by Section 4(1) as being ' received ' there, quite apart from any other words. But the argument of the assessee to be successful must take this vital step, viz., that because the interest was in fact payable outside British India, and received outside British India, therefore it did net accrue or arise in British India. In my judgment that argument is unsound. It in effect confines the words ' accruing or arising ' to ' payable ', and inheres the fact that income payable in British India is normally caught by the word ' received '. It also ignores what I have already mentioned as to the origin or source of the interest. In short this argument treats the sole test as being where is the income payable.
8. The matter does not, however, entirely rest there. We have also to consider the effect of Sections 6, 8 and 18 of the Act, for the income in question may fall within all these sections. It was argued for the assessee that the word ' receivable' in Section 8 was only intended to prevent any assessee from escaping tax by omitting to obtain actual payment of the interest, and then urging that he had not ' received' this income within Section 4. I do not, however, think that this i' the only effect of this word ' receivable,' for under Section 18(1) the tax would be deducted at the source, and by Section 18(4) it would ' be deemed to be income received.' But, however that may be, I do not think that in the case of securities of the Government of India, as. 8 and 18(4) have the effect of confining the interest in question to interest receivable in British India or ' deemed to be received ' there. The words ' in British India' do not appear in those sections. Accordingly, provided the income in question accrues or arises in British India within Section 4, I think it is liable to tax although receivable or received outside British India. Under these circumstances it is unnecessary to decide whether the assessee would be liable under Section 8 alone, on the ground that it applies to interest wherever receivable on securities of. the Government of India. The main charging section is Section 4(1), and that is the section referred to in the questions submitted to us, and I think rightly so, for the income to be taxed must be brought within its ambit.
9. As regards the authorities cited to us, they are not, I think, directly in point in the present case. The English authorities depend on the English Act which is worded differently from the Indian Act, and enacts a different basis of taxation from that in India, which depends on income accruing or arising or received in British India or deemed so to be. (See Be Rogers Pyatt Shellac CO Co. v. Secretary of State for India ilr (1934) Cal. 1 and Board of Revenue, Madras v. Bamanadhan Chetty ILR (1919) Mad. 75. The Indian authorities brought to our attention were on quite different facts. Accordingly, in this respect I do not propose to add anything to the judgment of my brother Blackwell, which I have had the advantage of reading.
10. In the result I would hold that the income in question being interest on a security and debt of the Government of India issued and contracted in British India and repayable there, accrued or arose in British India within the meaning of Section 4(1) of the Act, notwithstanding that it was actually payable and paid outside British India. I would, therefore, uphold the opinion of the Commissioner, and answer the questions submitted to us as follows, viz., (1) The interest in question is income accruing or arising in British India within the meaning of Section 4(1) of the Act. (2) The said interest is liable to be assessed to Spartan. I would also direct the assessee to pay the Commissioner's costs of this reference, to be taxed by the Taxing Master on the Original Side scale.
11. The answers to the questions submitted on this reference depend upon the meaning to be attributed to the words in Section 4(1) of the Indian Income-tax Act 1922 ' income, F profits or gains, as described or comprised in Section 6, from whatever x source derived, accruing or arising, or received in British India.'
12. The learned counsel for the assessee drew our attention to the ' judgments of the Court of Appeal in Colquhoun v. Brooks (1883) 21 Q. B. D. 52. Dealing with the true construction of schedule D in 16 & 17 Vic. c. 34, Lopes L. J. said (p. 64):-
I understand the words ' arising or accruing to any person residing in the United Kingdom' to mean coming to his hands or received by him in the United Kingdom.
13. An argument that this was the proper meaning to be attributed to the words 'arising or accruing to any person residing in the United Kingdom' was advanced in the House of Lords, but it was not accepted by Lord Macnaghten, who said (p. 511):
Nor is there, I think, any room for the argument that the expression 'arising or accruing to any person' in the first sentence of Schedule D means 'received by any person in the United Kingdom' (see Colquhonn v. Broohs (1889) 14 App. Cas. 493.
In Section 4(1) of the Indian Income-tax Act of 1922 the words 'accruing or arising' are found in juxtaposition to the words 'or received' Accordingly, I think it plain that the words ' accruing or arising ' denote something different from the word ' received.'
14. It was next contended on behalf of the assessee that the interest on these Government of India Promissory Notes did not accrue or arise in British India, because that interest, by virtue of the enfacement made upon the notes, is payable at a place outside British India. It was argued that the income must accrue or arise to the assessee, that the, source or place from which the income was derived was immaterial, that the assessee had no right to demand payment of the interest on these notes in British India, and that the interest did not therefore accrue or arise to him in British India.
15. In support of this argument counsel for the assessee drew our attention to an expression of opinion in the dissenting judgment of Fry L. J. in Colquhoun v. Brooks as follows (p. 59):-' I think, therefore, that the words ' arising or accruing' are general words descriptive of a right to receive profits'. Counsel for the assesses submitted that this interpretation of these words was correct, and that income, profits or gains, can be said to accrue or arise only in the place where there is a right to receive them.
16. But in the case in question Mr. Brooks undoubtedly had the right to receive the profits in Australia, where they were made, as well as the right to bring them to England, if he choae. These, words of the Lord Justice cannot, therefore, in my opinion, be relied upon as an expression of opinion that profits or gains do not arise or accrue in the place where they are made.
17. Turning to the Indian authorities to which our attention was drawn, not much assistance can, in my opinion, be derived from them, the facts in each case being so different from those in the present. There are, however, certain passages in some of the judgments in those cases, to which I will briefly refer, which appear to me to be opposed to the contentions raised on behalf of the assessee in the present case.
18. In Board of Revenue, Madras v. Mamanadhan Chetty ILR (1919) Mad. 75 Abdur Rahim, Offg. Chief Justice, said at page 81 with reference to Section 3(1) of the Indian Income-tax Act of 1918 (which corresponds in substance with Section 4(1) of the present Act) :-' The tax is leviable with reference to the place where the income accrues or arises or is received and not, with reference to the residence of the person who is entitled to receive the income.' In the same case at page 88 Sashagiri Ayyar J. refers to ' the situs of personal pro-party for the purposes of taxation ' as being ' of the utmost importance in determining the limitation of the taxing power and the principles which should control the exercise of that power.' The learn id Judge goes on to stay that the English Income-tax Acts appear to have been based on this principle, and after quoting a passage from the judgment of Lord Herschell in Colquhoun v. Brooks as follows (p. 504), 'the Income-tax Acts, however, thamselves impose a territorial limit; either that from which the taxable income is derived must be> situate in the United Kingdom or the parson whose income is to be taxed must be resident there' he says that the same principle is traceable in the provisions of the Indian Income-tax Acts; and at page 89, in discussing the scheme of the Act of 1918, he says:-'There is first a general provision as to the locale of the income which is to be taxed. That is contained in Section 3, Clause (1).' Again, in Secretary to the Board of Revenue, Income-tax, Madras v. Arunachalam Chettiar ILR (1920) Mad. 65 Wallis 0. J., in discussing Section 3 of the Act of 1918, said (p. 69):-
That section, which appears under the head of ' Taxable income,' provides is effect that the income which is to be taxed under the Act is income from whatever source derived if it accrues or arises or i it is received in British India, that is to say, income which accrues or arises is British India is taxable even if it is received elsewhere as in England, while income which is received in India is taxable even if it accrued or arose out of British India.' I respectfully agree with these expressions of opinion by these learned Judges, which are equally applicable to the words used in Section 4(1) of the present Act. I think that the words 'accruing or arising' are used with reference to the place from which the income is derived, and the use of the word ' source ' in the expression ' from whatever source derived ' confirms me in this opinion. In the present case the interest is derived from a loan which was made in British India, that loan, as to the principal, being re-payable in British India, and I entertain no doubt that the interest accruing due upon, or arising from, that loan accrues or arises in British India.
19. But even if this interest accrues or arises in British India, must there still be a right to receive it in British India in order to render the payee liable to income-tax and super-tax I think not. This class of income falls within the second head mentioned in Section 6 of the present Act, namely, ' Interest on Securities', Section 8 provides as to this class of income as follows:-' The tax shall be payable by an assessee under the head ' Interest on Securities' in respect of the interest receivable by him on any security of the Government of India or of a Local Government,..' The word used here is ' receivable '. It is not confined to interest which is receivable in British India. Accordingly, in my opinion, the tax is payable upon this interest, which I hold to accrue or arise in British India, notwithstanding that the assessee has no right to receive it in British India, and that it is receivable at a place outside British India.
20. I would, therefore, answer the questions submitted as follows :-(1) The interest accrues or arises in British India and (2) The said interest is liable to be assessed to super-tax.
21. Per Curiam. Answer the questions as follows :-(1) The interest is income accruing or arising in British India within the meaning of Section 4(1) of the Act. (2) The said interest is liable to be assessed to super-tax. Order the assessee to pay the Commissioner's costs of this reference, to be taxed by the Taxing Master ont he Original Side scale.