V RAMASWAMI AYYANGAR AND K R SUBRAMANIA AYYAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Two questions were referred to us by the Appellate Tribunal under Section 66 (1) of the Income-tax Act. They are;

(2.) The second of the two questions does not present much difficulty. One Arunachalam Chettiar died on 23rd February 1948 and the assesses had to pay estate duty to the Ceylon Government amounting to nearly 10 lakhs. The duty is leviable under Section 26 (1) of the Ceylon Ordinance I [1] of 1938 and the duty is also made a charge on the estate under that section. It is to be paid within a year of the death of the last owner of the estate and in default under Section 46 of the Act simple interest at the rate of four per cent, per annum, is payable on the amount of the duty. Under the proviso to Section 46, it is open to the heirs or executors of the deceased to estimate the value of the estate on which the duty is payable and pay it within the period of one year though the amount was not actually assessed. In the present case, the amount was not paid by the persons responsible to pay the duty within the time limited under the Act as a consequence of which they became liable to pay interest as provided under Section 46 of the Act. This amounted to a huge sum of Rs. 84,388. The assessee claimed unsuccessfully that this amount should be deducted either under Section 10 (2) (ii) or under Section 10 (a) (xii) which now corresponds to (xv) of the Income-tax Act.

(3.) Before us the first contention urged on behalf of the assessee by Mr. Bhashyam, the learned advocate, is that in respect of foreign profits the assessee should not be restricted to the deductions provided under Section 10 of the Act. His argument was that the language of the section applies only to business carried on in British India and not outside it. He however did not dispute that the legislature had jurisdiction to enact laws which had extraterritorial force and did not therefore urge that by reason of any disability or restriction imposed upon the power of the legislature to enact laws, we should read the word 'business' occurring in the section in a restricted sense so as to confine it to British India. Under the charging Section 4, a person resident in British India is liable to pay income-tax in respect of income, profits and gains not only received in British India but also which arose or accrued outside British India whether he actually brings the income, profits and gains into British India or not. Under Section 6, various sources of taxable income are indicated and Section 10 provides that the assessee is liable to pay tax under the head "profits and gains of business, profession of vocation" in respect of the profit or gains of any business, profession or vocation carried on by him. Under Subclause (2) of that section, such profits or gains have to be computed after making the allowance enumerated in that clause.