Business connection taxation and refund relief require evidence and cannot bypass pending assessment proceedings.

Income can be taxed in the hands of a non-resident only where there is evidence that profits or gains actually accrued or arose in the relevant year through a continuing business connection; mere disbelief of the taxpayer's documents is not enough. On the facts described, the earlier loan arrangement had been replaced, payments moved through a different branch and basis, and the evidential gap could not be filled by a presumption of continuity, so the liability finding was unsupported. A separate refund direction was also unsustainable while a fresh assessment and related proceedings remained outstanding, because the court could not bypass the statutory assessment machinery or compel repayment on that footing.

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Issues: (i) Whether there was evidence to justify the finding that in the relevant assessment year profits or gains accrued or arose to the non-resident company through its business connection with the Bombay company; (ii) Whether the High Court could direct refund and compel further steps when a fresh assessment and connected proceedings were still outstanding.

Issue (i): Whether there was evidence to justify the finding that in the relevant assessment year profits or gains accrued or arose to the non-resident company through its business connection with the Bombay company.

Analysis: The assessment could stand only if there was some evidence that the earlier loan relationship continued in the assessment year and that interest continued to accrue or be paid to the non-resident company. The books, correspondence, and declarations showed that the old loan arrangement had been replaced by a different transaction and that payments were made through the Shanghai branch on a tael loan basis. Mere disbelief of the assessee's documents, without positive evidence that the 1927 transactions were unreal or that the interest in substance went to the non-resident company, was insufficient. The statutory presumption of continuance could not fill the gap left by the absence of evidence.

Conclusion: No. The finding of liability was not supported by evidence and was rightly answered against the Revenue and in favour of the assessee.

Issue (ii): Whether the High Court could direct refund and compel further steps when a fresh assessment and connected proceedings were still outstanding.

Analysis: The earlier reference decision was advisory in character, and the taxpayer could not seek direct relief to set aside the later assessment or the set-off while that assessment remained in force. A court order under the Specific Relief Act cannot be used to command refund from public officers merely to enforce a claim on the Crown, especially where the statutory machinery for challenging the fresh assessment had not run its course. The Commissioner was not bound to terminate all proceedings merely because the reference had been answered, but the later assessment process and the coercive withholding of money through an invalid assessment were also criticised as improper.

Conclusion: No. The order directing refund was set aside and the High Court was held not justified in granting that relief while the fresh assessment subsisted.

Final Conclusion: The appeal on the reference failed on the merits of the assessment, but the High Court's separate order directing refund was set aside. The consolidated result left the assessee successful overall, with the parties directed to bear their own costs in the application and the Revenue to pay part of the costs in the consolidated appeal.

Ratio Decidendi: An assessment of income on the footing of a continuing business connection must rest on evidence that the income in fact accrued or arose in the relevant year, and a court cannot order refund by bypassing the statutory assessment machinery while a valid assessment or connected proceeding still stands.

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