COMMR OF INCOME-TAX, BOMBAY PRESIDENCY Vs. BOMBAY TRUST CORPORATION

JUDGEMENT

(1.) The respondents in this case are the Bombay Trust Corporation, Limited, who are a company having their office in Bombay. A company called the Hongkong Trust Corporation, incorporated in Hongkong (hereinafter called the Hongkong company), lent money, from time to time, on deposit to the respondents at the rate of 51/4 per cent, and the respondent duly paid interest at that rate on the money deposited. The Senior Income- tax Officer duly served a notice on the respondents in terms of S. 43, Income-tax Act, 1922, that he intended to treat them as agents of the Hongkong company, and after hearing the respondents as to liability he assessed them to income-tax and super tax as agents of the Hongkong company in respect of the amount of interest in the year of charge. The respondents appealed to the Commissioner under S. 30 of the Act contending that they were not liable to be so assessed, and also raising questions as to amount. The Commissioner on the hearing of the appeals held that they were properly assessed as agents for the Hongkong company, but altered the assessment as to the amount. No further question on the amount arises. The respondents in pursuance of S. 66 (2) of the Act required the Income-tax Commissioner to refer to the High Court the questions of law arising out of the decision of the Commissioner.

(2.) The questions so referred were as follows : "(1) Whether the interest paid by the Bombay Trust Corporation, Limited to the Hongkong Trust Corporation, Limited, on loans taken by the Bombay Trust Corporation, Limited, from the Hongkong Trust Corporation, Limited, is profits or gains accruing or arising to the Hongkong Trust Corporation, Limited, directly or indirectly through or from any business connexion or property in British India. (2) Whether such interest is liable to income-tax under the Income-tax Act. (3) Whether the Bombay Trust Corporation Limited, can be treated as the agent of the Hongkong Trust Corporation, Limited, for the purpose of S. 42, Income-tax Act in respect of the interest so paid by the Bombay Trust Corporation, Limited, to the Hongkong Trust Corporation, Limited. (4) Whether the Bombay Trust Corporation Limited, can be deemed to be assessee under S. 42 of the Act in respect of any income-tax which might be levied on the interest so paid by the Bombay Trust Corporation, Limited, to the Hongkong Trust Corporation, Limited. (5) Whether the relation between the Bombay Trust Corporation, Limited, and the Hongkong Trust Corporation, Limited, was not purely that of a borrower and lender and whether the Bombay Trust Corporation, Limited, as borrower, could be deemed to be the agent of the lender the Hongkong Trust Corporation, Limited, under Ss. 42 and 43, Income-tax Act, in respect of interest payable on such loan and in respect of any income-tax that may be chargeable on such interest.

(3.) The Court answered the questions submitted to them as follows: (1) Yes, from a business connexion, but it also arises directly under S. 4(1) and S. 6 (4) and (6). (2) Yes. (3) and (4) No, because the Bombay company is not in receipt of any such interest on behalf of the Hangkong company as required by S. 40. (5) The relation between the two companies is that of borrower and lender, but having regard to S. 43, the Bombay Company, though deemed to be an agent of the Hongkong company for the purposes of Ss. 40 and 42, should not be assessed as they were not in receipt of income."