(Judgment of the Court was delivered by the Honble the Chief Justice.)
The assessee is a Nattukottai Chettiar and before the Japanese occupation of the Malay Peninsula he carried on a money-lending business at Penang. While engaged in business there he became the owner of a number of house from which he received rent. In the year 1941-42 he was assessed to tax under the Indian Income-tax Act in respect of the income derived from there houses during the previous year. The tax was levied on the basis of Section 9 of the Act. The assessee contended that Section 9 did not apply, but that Section 10 did. The contention was rejected by the Income-tax authorities and by the Income-tax Appellate Tribunal, Calcutta Bench, on appeal from the order of the Additional Appellate Assistant Commissioner. At the request of the assessee the Tribunal has referred the following question for the opinion of this Court :-
'Whether in the circumstances of the case, the provision of Section 9 of the Income-tax Act were rightly applied for assessment of the income from house properties situated outside British India ?'
Until the Act was amended in 1939 income occurring abroad to a resident of India was not taxable until it was brought into British to pay the tax on income within British India. By Act VII of 1939 a resident in British India became liable to pay the tax on income accruing to him without British India as well as on his income within British India. The assessee says that the Tribunal was wrong in holding that Section 9 can be applied to income derived by him from his house property in Penang because the section was in the Act before its amendment in 1939 and then only applied to income from property situate in British India. He goes on to say that the income from his house in Penang must be regarded as income occurring to him in the course of his business, which means the application of Section 10. This latter argument is based on the decision of this Court in Ramaswami Chettiar v. Commissioner of Income-tax, Madras. In that case the assessee carried on a money-lending business in Kualalumpur and received rents from properties which he had taken over in satisfaction of loans granted by him in the course of his business. The income from these properties was brought into British India, and the question was whether Section 9 was applicable. It was held that it was not and that the tax should be levied in accordance with Section 10 as income derived from business carried on abroad, the properties having been acquired in the course of the business.
We consider that the decision in Ramaswami Chettiar v. Commissioner of Income-tax, Madras, can no longer be applied. Foreign income is now taxable whether brought into India or not. Section 6 seats out the heads of income chargeable and the third heads is income from property. When the Act was amended in 1939 by including income accruing abroad, Section 9 automatically became applicable to income from house property owned aboard. Moreover the proviso to Section 9 (1) (iv) itself gives clear indication that the legislature did intend to make the section applicable to income derived from property outside British India. Clause (iv) allows certain deductions to be made in calculating the taxable amount of this class of income, but the proviso says that no allowance shall be made in respect of any interest or annual charge payable without British India and chargeable under the Act, not being interest on a loan issued for public subscription before the 1st April 1938, except interest or a charge on which tax has been paid or from which tax has been deducted under Section 18 or in respect of which there is an agent for the payee in British India who may be assessed under Section 43.
In this Court it has been suggested that, if Section 10 does not apply, Section 12 does apply. Section 12 refers to income from 'other sources', that is, income from sources not specifically dealt with in the earlier sections of the Act. If Section 10 cannot be applied, as we hold it cannot, Section 12 is even more inappropriate.
We consider that the decision of the Tribunal upholding the assessment in accordance with Section 9 of the Act was right and we answer the question referred accordingly.
The assessee will pay the costs of the Commissioner of Income-tax, Rs. 250.
Reference answered in the affirmative.