Territorial nexus and partnership agency can bring foreign income into tax charge and support assessment jurisdiction.

The text explains that, under the Income-tax Act, 1922, a company could be taxed on income accruing outside British India if its residence and the statutory charging provisions brought its total income within charge and there was sufficient territorial nexus with British India. It also states that territorial jurisdiction for assessment under section 64(1) followed the place where the business was carried on, and that a partner could be treated as carrying on the firm's business even without active management. On that basis, foreign income was treated as taxable and assessment by the officer having jurisdiction over the firm's place of business was valid.

---

---

Issues: (i) Whether the impugned provisions of the Income-tax Act, 1922 validly subjected a company to tax on income accruing or arising without British India where the company satisfied the statutory test of residence. (ii) Whether the assessment was made by the proper Income-tax Officer under the territorial jurisdiction provision.

Issue (i): Whether the impugned provisions of the Income-tax Act, 1922 validly subjected a company to tax on income accruing or arising without British India where the company satisfied the statutory test of residence.

Analysis: The charging provision operated on the total income of the previous year, and the definition of residence in Section 4A(c), read with Section 4(1)(b)(ii), could validly be used to bring foreign income into charge if the legislature had power to tax it. The relevant legislative power under the Government of India Act, 1935 was construed as permitting taxation where there was sufficient territorial connection between the person taxed and British India. A company deriving the major part of its income from British India during the relevant year was held to have a sufficient territorial nexus and to be properly treated as within the legislative reach for income-tax purposes.

Conclusion: The impugned provisions were held intra vires, and the assessment to tax on the foreign income was valid.

Issue (ii): Whether the assessment was made by the proper Income-tax Officer under the territorial jurisdiction provision.

Analysis: Under Section 64(1), a person carrying on business at a place is to be assessed by the Income-tax Officer of the area where that place is situate. A partner need not personally manage the business in order to be carrying it on, because in partnership each partner is the agent of the others for the purposes of the firm's business. The company's status as a sleeping partner did not prevent it from carrying on business at the partnership place of business.

Conclusion: The assessment by the Additional Income-tax Officer having territorial jurisdiction over the firm's place of business was valid.

Final Conclusion: The statutory charge on the company's income, including income arising outside British India, was upheld, and the assessment was sustained on jurisdictional grounds.

Ratio Decidendi: For income-tax purposes, a company's derivation of the major part of its income from British India creates a sufficient territorial connection to sustain taxation on its total income, and a partner is carrying on the firm's business even if it takes no active part in management.

---