PONDICHERRY RAILWAY CO LTD Vs. COMMISSIONER OF INCOME-TAX, MADRAS

JUDGEMENT

(1.) For the years 1925-26 and 1926-27 assessment to income-tax and super-tax under the Income-tax Act, 1922 (11 of 1922) were made on "the Agent, Pondicherry Ry. Co. Ltd., Trichinopoly" in respect of the income derived by the company from its business. On appeal these assessments were confirmed by the Assistant Commissioner of Income-tax, Southern Range, Madura. The assessee thereupon under S. 66 (2) of the Act required the Commissioner of Income-tax for the Province of Madras to refer to the High Court of Judicature at Madras certain questions of law arising with regard to the validity of the assessment. The Commissioner accordingly stated a case in which he referred for the decision of the Court four questions of law, three only of which it is necessary to set out here viz.: "(b) Whether the Pondicherry Ry. Co. Ltd. which is resident without British India is liable to be assessed to income-tax on the income derived by it from the working of the Pondicherry Railway under S. 4, Income-tax Act as income accruing or arising or received in British India?' (c) Whether the Pondicherry Ry. Co. Ltd. carries on business in British India within the meaning of the Income-tax Act ? and (d) Whether in any event the income of the said company that is liable to assessment to income- tax is only that portion which is payable to it under the concession between it and the French Colonial Government ?"

(2.) The Commissioner, as required by the Act, stated his opinion on the questions referred which was to the effect that Questions (b) and (c) fell to be answered in the affirmative and Question (d) in the negative. In the High Court the learned Chief Justice (Sir Murray Courts Trotter) was of opinion that Questions (b) and (c) should be answered in the negative, but the majority of the Court (Odgers and Beasley, JJ.) were of opinion that these questions should both be answered in the affirmative. This accordingly became the decision of the Court. As regards Question (d) the Court was unanimously of opinion in the negative.

(3.) The assessments having thus been upheld the Court under S. 66-A (2) of the Act certified the case to be a fit one for appeal to His Majesty in Council and it has now been heard by their Lordships on the assessee's appeal. It is necessary to set out in some detail the material facts. The Pondicherry Ry. Co. Ltd. was incorporated in the United Kingdom in 1869 under the British Joint Stock Companies Acts for the purpose of constructing a railway in the French Colony of Pondicherry. The registered office of the company has always been in London. In the year 1878 the company entered into a convention with the Minister of Marine and Colonies acting on behalf of the French Colony of India whereby a concession was granted to the company to construct and work a line of railway from the landing pier at Pondicherry to a junction with the S. I. Ry. at the frontier of the French territory. The duration of the convention was fixed at 99 years and the company thereby undertook to construct and work the proposed railway, or to cause the same to be constructed and worked, and assumed various obligations in regard to it. In consideration of the company's engagements the French Minister undertook to pay to the company in instalments a subsidy of 1,251,375 francs and to provide the requisite land free of charge. The convention further provided as follows: "The company undertakes on its part to make over to the Colonial Government during the whole duration of the concession one half of the net profits which shall be arrived at by deducting from the gross receipts the rates and taxes of every kind chargeable to the company as well as the amount expended in the purchase or hire of rolling stock, the expenditure relating to maintenance and repair of the lines, of fixed plant and rolling stock; expenses of working and administration; as well as such sums, if any, as with the consent of the Colonial Government may be placed to reserve to cover the costs of heavy repairs of the works of the railway and for the renewal of the "material." But this division shall not commence until after deduction by the company of a sum of one hundred and fifty-seven thousand five hundred francs (157,500 francs) from the aggregate amount of the net profits during the first years of the working of the line; and this by way of reimbursement for the expenses of administration for which the company has made itself liable."