COMMISSIONER OF INCOME TAX Vs. WESTERN INDIA LIFE INSURANCE COMPANY LIMITED

JUDGEMENT

(1.) THIS reference is made under Section 66(1) by the Income-tax Appellate Tribunal in respect of the respondent assessee, at the instance of the Commissioner The admitted facts are that the Insurance Company, which is doing life insurance business and held to be resident in British India, has certain securities with the Midland Bank, London. The interest on these securities has been recovered but not brought into British India. The assessee claimed that under the third proviso to Section 4(1) it was entitled to an exemption of Rs. 4,500 in respect of this foreign income. The taxing authorities contended that the proviso did not apply. The Income-tax Tribunal rejected the contention of the taxing authorities. The following question is submitted for the Court s opinion:

(2.) ON behalf of the Commissioner it is contended before us that the scheme of Section 4 is first to divide the income in respect of a resident in British India into two parts : (1) income which accrues to him in British India; and (2) income which accrues to him without British India. The next stage is to find out whether, out of the income which is found to have accrued to him outside British India there exists any income which can be described as deemed to accrue or arise to him within British India by reason of Section 42 of the Income-tax Act. It was contended that before the amendment of the section in 1939 the opening words of Section 42 were:

(3.) APART from that, in my opinion, Section 42 does not apply to this case at all. If the contention of the Commissioner was correct, the section would have been divided into two parts : the first part covering the case of a resident and a non-resident and the second part providing the machinery by which the income, which was deemed to have accrued to the non-resident assessee could be brought to assessment. By making the whole of the first paragraph as one, and connecting the two parts of that paragraph by the word "and", the Legislature has clearly indicated that it was making provision for the assessment of a non-resident only by that paragraph. I have already pointed out that in Section 4(1)(c) taxation of that part of a non-resident s income, which is deemed to have arisen in British India, is contemplated. Again, the various expressions used in the first part of that paragraph of Section 42 appear inappropriate when considered in connection with a resident assessee. The income, in the contingencies mentioned there, ordinarily would arise or accrue in British India, and except by stretching one s imagination one cannot conceive of cases when those circumstances apply in respect of a resident in British India. Giving the words used in Section 42 their natural meaning, it seems to me that the whole of the first part of Section 42 applies to non-residents and is not intended to define the expression "deemed to accrue or arise within British India" in respect of a person ordinarily resident in British India. If the intention of the Legislature was to define the expression "deemed to have accrued in British India" in respect of all persons, this should have been done in the definition in Section 2 and not under Chap. v. which deals with special cases only. The very fact that Section 42 is put under this Chapter, in my opinion, negatives the contention that this expression is defined for all assessees.