1948 (9) TMI 12 - HC - Income Tax

Interpreting Indian Tax Law: Property-Derived Income Subject to Section 23A

Kilburn Properties Limited Versus Commissioner of Income-Tax, Bengal

The court held that Section 23A of the Indian Income-tax Act applies to a company deriving income solely from property, rejecting the argument that ... - Issues:1. Interpretation of Section 23A of the Indian Income-tax Act regarding the applicability to a company deriving income solely from property.2. Whether the words 'profits and gains' in Section 23A(1) are limited to business profits only.Analysis:1. The case involved a reference under Section 66(1) of the Indian Income-tax Act concerning orders under section 23A(1) for the assessment years 1941-42 and 1942-43 for a company with income solely from house property. The Income-tax Officer made orders under Section 23A(1) as the company did not declare dividends despite assessable income being available. The Appellate Assistant Commissioner set aside the orders, but the Income-tax Appellate Tribunal reversed them.2. The main contention was whether Section 23A applied to a company deriving income solely from property. The argument put forth was that the words 'profits and gains' in Section 23A(1) referred to business profits only. However, the court disagreed, citing various sections of the Act where the term 'income' was used broadly, encompassing various sources, not limited to business profits. The court emphasized the classification of income under different heads in the Act and rejected the argument limiting 'profits and gains' to business income only.3. The court also discussed precedents and observed that the words 'profits and gains' in Section 23A should be construed within the Indian Act without reference to English decisions. The contention that the technical meaning of 'profits and gains' limited it to business profits was rejected. The court highlighted that the Act did not compel limiting the interpretation to exclude companies with income solely from property.4. Additionally, the argument that forcing a company with property-derived income to distribute 60% of assessable income could lead to drawing on capital was deemed implausible. The court noted that in such cases, the Income-tax Officer could refrain from exercising power due to minimal profits, and the Inspecting Assistant Commissioner could withhold approval. The court emphasized that the Act did not provide grounds to restrict the application of Section 23A to exclude property-based income companies.5. Ultimately, the court answered the question in the affirmative, stating that the company must pay costs of the reference. The judgment was delivered by Das, J., with Mukherjea, J., concurring. The reference was answered affirmatively by Mukherjea, J., concluding the analysis of the case.