COMMISSIONER OF INCOME-TAX, BOMBAY PRESIDENCY Vs. CURRIMBHOY EBRAHIM AND SONS, LTD

JUDGEMENT

(1.) This appeal arises out of an assessment order made by the Income-Tax Officer of A Ward, Bombay, on 7 August 1931, against the respondent company, Messrs. Currimbhoy Ebrahim and Sons, Limited, as agents of His Exalted Highness the Nizam of Hyderabad. The order was made in respect of income-tax for the year of assessment 1931-1932, but was based upon the accounting period being the year 1930-31. Two items only were included in the order, first, the sum of Rs. 27,960 being income-tax claimed to be due from the Nizam under the head "property" in respect of house property in Bombay of which he is the owner; secondly, a sum of Rs. 3,15,214 being the amount received in the year of account by the Nizam from the respondent company as interest due upon a loan of Rs. 50,00,000 made by the Nizam to the respondent company upon the terms of a written instrument dated 16 August 1929. The latter claim was laid under the heading "Other Sources" as defined by S.12 of the Act.

(2.) This assessment of the respondent company in respect of income-tax claimed to be due from the Nizam was based upon proceedings taken under S. 43, Income-tax Act (Act 11 of 1922), a notice having been issued upon the respondent company to the effect that the Income-Tax Officer intended to treat them as agents of the Nizam. Notice having been issued on 7 May 1931 and the respondent company having appeared and objected, the Income-Tax Officer on 5 June 1931 made an order in writing holding that a business connection existed between the respondent company and the Nizam, and that the word "property" appearing in S. 42, sub-S. 1 of the Act includes moveable property and investments. The final conclusion of this order was that there was income chargeable to income-tax under S. 42 (1) of the Act and that Messrs. Currimbhoy Ebrahim and Sons, Limited, might be deemed to be the agent of His Exalted Highness the Nizam. As already mentioned, the Assessment Order of 7 August 1931 included income-tax in respect of house property in Bombay. This was property with which the respondent company had nothing whatever to do. It appears from the Assessment Order itself that it was included, not because income-tax under the head ?property" had not been paid by the person managing the property, but because the Income-Tax Officer considered that income of an assessee from all sources must be included in one assessment, and that there cannot be two or more assessments against one assessee for the different sources of income. The respondent company appealed from the Assessment Order to the Assistant Commissioner of Income-Tax, Bombay, taking objection not only to the claims themselves, but also to the right of the Income-Tax Officer to treat them as agents of the Nizam. The appeal was dismissed by the Assistant Commissioner who upheld the findings of the Income-Tax Officer under the first sub-section of S. 42 in respect of the interest upon the loan. He also upheld the assessment in respect of the house property, on the ground that it was within the right of the Income-Tax Officer to select any agent as the principal agent and to bring all items of income into one assessment, The respondents company thereupon applied under S. 66 of the Act to the Commissioner of Income Tax to make a reference to the High Court of Bombay regarding certain questions of law arising out of the Assessment Order, and by Letter of Reference dated 30 November 1932, the Commissioner submitted five questions formulated by the respondent company. The questions were as follows: (1) Whether the facts of the case constitute a business connection between the applicants and His Exalted Highness the Nizam within the meaning of S.42, Income-tax Act. (2) Whether the interest earned by His Exalted Highness the Nizam on the loan made to the applicants constitutes profit or gain accruing or arising to His Exalted Highness the Nizam directly or in directly through or from any business connection or property in British India chargeable to Income tax in the name of the applicants. (3) Whether the assessee can in law be deemed to be agent of His Exalted Highness the Nizam under S. 43 of the Income-tax Act. (4) Whether the applicants are liable to be assessed as agent for His Exalted Highness the Nizam in respect of : (A) Interest on the loan above referred to. (B) Property income above referred to. (5) Whether the assessment levied on the applicant is valid in law.

(3.) The opinion of the Commissioner submitted as required by Sub-S. 2 of S.66 of the Act was to the effect that the interest income arose from a business connection in British India within the meaning of S. 42, sub-S. (1). He also found that the respondent company were liable to be deemed the Nizam's agents for all the purposes of the Act by reason of the fact that they had a business connection with the Nizam. The High Court of Bombay answered all the questions propounded in the negative, holding that there was no business connection between the Nizam and the respondent company, that the interest income did not arise to the Nizam through or from any property in British India, and that the respondent company is not hit by S. 43 of the Act either as having any business connection with the Nizam or as being persona through whom the Nizam is in receipt of any income, profits or gains. It is from this decision that the present appeal has been brought to His Majesty in Council by the Commissioner for Income-tax.