IRANEE B B Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-9-11
HIGH COURT OF BOMBAY
Decided on September 08,1962

B.B.IRANEE Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Cited Judgements :-

B B IRANEE VS. COMMISSIONER OF INCOME TAX BOMBAY CITY II [LAWS(SC)-1965-12-39] [AFFIRMED]


JUDGEMENT

TAMBE, J. - (1.)THIS is a combined reference. One question has been referred to this Court by the Tribunal under sub-s. (1) of s. 66 of the Act and the other question has been referred on a direction issued to the Tribunal by this Court under sub-s. (2) of s. 66 of the Act. Facts giving rise to this reference in brief are :
(2.)WE are here concerned with the asst. yr. 1947-48, the relevant previous year being the calendar year ended on 31st Dec., 1946. The assessee, Shri B. R. Iranee, proprietor of M/s C. M. Karanjia & Co., has been carrying on a fairly large business of export and import both in Hongkong and Bombay. He was formerly residing in Hongkong and came to India on 29th June, 1941, leaving an employee to look after his business there. Similar business was started by the assessee in Bombay in March, 1941, and one Mr. K. M. Vazifdar, an employee of the assessee, was looking after the Bombay business. From 29th June, 1941, till about 9th June, 1946, the assessee remained in India. Thereafter for a short time he went to Hongkong and again returned to Bombay some time in September, 1946. The assessee was, for the first time, assessed in the asst. yr. 1942-43. In that assessment, i.e., the asst. yr. 1942-43, the assessee claimed a set-off for the alleged losses incurred by him in respect of the business conducted by the Hongkong branch. This claim, however, was not allowed by the ITO. In appeal the AAC in his order dt. 1st July, 1948, dealing with this claim of the assessee observed :
"The loss in the Hongkong branch for the year of account has not been satisfactorily proved and it cannot therefore be considered."

For the asst. yrs. 1943-44 to 1946-47 the assessee was assessed as a resident and no dispute as regards the aforesaid loss was raised by the assessee in any of these years. In the asst. yr. 1947-48 the assessee again claimed that there were losses in the year 1941 and it should be ascertained and set off under the provisions of s. 24(2) of the Act against his income for the previous year relating to the asst. yr. 1947-48. The ITO disallowed the assessee's claim on the ground that the factum of loss was not established. The assessee again raised this question before the AAC in appeal but the AAC did not deal with it. In the further appeal before the Tribunal again, this question was raised by the assessee. The Tribunal rejected it observing :

"As regards the loss alleged to have been suffered in and prior to 1941, we would content ourselves by confining that there was no determination of such loss anywhere. Secondly, it is manifest that the business at that time was carried on in Hongkong and it was not subject to Indian income-tax. What was not subject to Indian income-tax cannot be deducted as an allowable loss. The income or loss during that period was completely out of the pale of the Indian income- tax. There is no evidence anywhere that the business at that time was controlled in India and that the loss occurred on account of the business controlled in India. Mr. Iranee, at that time, was in Hongkong and controlled the business there. We agree with the AAC that the assessee's claim for setting off the loss is not established. In fact, the loss was not determined as such and, therefore, the assessee is not entitled to any relief on this account."

The assessee in his application under sub-s. (1) of s. 66 of the Act had asked the Tribunal to refer to this Court a question of law arising on this aspect of the case. But that request was not allowed by the Tribunal. On a direction issued by this Court under sub-s. (2) of s. 66 of the Act the Tribunal has referred to this Court the following question :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in law or misdirected itself in rejecting the assessee's claim to set off the alleged losses of 1941 of Hongkong business against the income of the assessment year ?"

(3.)THIS question we will number as question No. 1. THIS brings us to the other aspect of the case. As already stated, the assessee had returned from Hongkong to Bombay on 29th June, 1941, leaving an employee to look after the business there and had already started similar business in Bombay in March, 1941. For the first time he was assessed in the asst. yr. 1942-43 and during the years 1943-44 to 1946-47 he was assessed as a resident. Coming to the relevant asst. yr. 1947- 48, the previous year being the year ending on 31st Dec., 1946, the assessee resided in India for about 8 months during the said year. On 9th June, he went on a short visit to Hongkong and had returned to Bombay some time in September, 1946. In the relevant accounting year the business in Hongkong had been restarted after it had been temporarily closed during the operation of the war. The ITO asked the assessee to produce books of account relating to the Hongkong business. These books, however, were not produced by the assessee and he was, therefore, assessed in respect of that income on an estimate basis. The ITO estimated the income from the Hongkong business at Rs. 1 lakh. The amount, however, was further increased by the order of the AAC but with that amount we are not here concerned. The case then came up before the Tribunal in second appeal, and on this aspect of the case, various contentions were raised by the assessee before the Tribunal. In the first instance it was contended that the income of the business of the Hongkong branch was not liable to be included in the total income of the assessee. The Tribunal, however, found that during the accounting year relevant to the asst. yr. 1947-48, the assessee was a " resident but not ordinarily resident " in the taxable territories, but the Hongkong business was controlled by the assessee in India and, therefore, the income of the Hongkong branch was liable to be included in the total income of the assessee under the second proviso to sub-s. (1) of s. 4 of the Act. The other contention raised before the Tribunal was that the Departmental authorities ought to have estimated the income for the period of control and not for the entire year. In this case since the assessee resided in India only for 8 months out of 12 months, roughly 2/3rds of the income should only be brought to tax in India. THIS contention was not accepted by the Tribunal for the following reasons :
"It appears to us that there is no authority to dissect the income of the previous year on the basis of control in British India. Sec. 3 of the Act, which is the principal section charging income-tax, speaks of the income of the previous year. Sec. 4, which deals with the application of the Act, again speaks of the income of the previous year. Sec. 4(1) speaks of the income of the previous year. Proviso (2) to cl. (c) of that sub-section, which is the material one in question, speaks of the income ' derived from a business controlled in or a profession or vocation set up in India '. THIS proviso is in s. 4(1) and, in our opinion, it embraces the income of the previous year of the assessee. The business is one and whole and if the control was exercised in India, it is caught by virtue of the above referred second proviso. In order to accept the learned counsel's arguments, much has to be read in the provisions which is not there. Neither time factor, nor fractional part of business is envisaged in that proviso. For instance, it is not mentioned ' that part of income or profits and gains which accrues or arises '. It simply reads ' income, profits and gains which accrue or arise '. Similarly, it does not also speak of income derived from that part of business controlled in India. It speaks of income derived from a business controlled in India. We have shown above that the business was controlled in India and indeed Mr. Iranee went out to Hongkong only for a preliminary survey. We are, therefore, unable to accept the first argument of Mr. Palkhivala."

On this aspect of the case at the instance of the assessee the Tribunal has referred the following question to this Court :

"Whether, on the facts and in the circumstances of the case, the income of the assessee from the Hongkong branch should be apportioned either on a time basis or in any other manner for the purpose of inclusion in the total income of the assessee ?"



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