Section 42 of the Income-tax Act: broad charging language permits resident assessees and reasonable profit apportionment.

Section 42(1) of the Income-tax Act, 1922 was construed broadly to apply to resident as well as non-resident assessees, because the opening charging words were not limited by the later reference to a person not resident in British India. Section 42(3) was likewise treated as wide enough to cover a resident assessee where all operations were not carried on in British India, and to permit reasonable apportionment of profits attributable to operations in British India. The statutory scheme, including the proviso and Section 14(2)(c), supported this construction, so the apportionment under Section 42(3) was upheld.

---

---

Issues: Whether Section 42(1) and Section 42(3) of the Income-tax Act, 1922 apply to a resident assessee and whether the profits attributable to operations in British India could validly be apportioned under that provision.

Analysis: The amended language of Section 42(1) was held to be comprehensive and not confined to persons residing outside British India. The reference in the latter part of the sub-section to a person not resident in British India was treated as showing a different mode of charge, not a restriction on the opening words. The first proviso and Section 14(2)(c) were read as supporting the view that Section 42 was intended to operate in the case of residents as well as non-residents. Section 42(3), dealing with businesses where all operations are not carried out in British India, was treated as wide enough to cover a resident assessee and to permit apportionment of profits reasonably attributable to operations carried on in British India.

Conclusion: Section 42(1) and Section 42(3) of the Income-tax Act, 1922 apply to residents as well as non-residents, and the impugned apportionment under Section 42(3) was upheld.

Ratio Decidendi: Where the language of a charging provision is wide enough to include residents and the scheme of the Act supports that construction, a limiting marginal note or proviso cannot cut down the plain scope of the enactment.

---