1955 (1) TMI 39 - HC - Income Tax

Court rules non-residents not liable for tax on speculative profits.

The court concluded that the profits from speculative transactions did not accrue or arise in British India. Therefore, the residents were not obligated ... - Issues Involved:1. Whether the loss to the residents arising from the forward contracts entered into by them with the non-residents is a profit accruing or arising to the non-resident in British India within the meaning of S. 4 (1) of the Income Tax Act.2. Whether the residents are bound to deduct tax under the provisions of S. 18 (3-A) on the amounts paid by them to the non-residents.Issue-wise Detailed Analysis:1. Whether the loss to the residents arising from the forward contracts entered into by them with the non-residents is a profit accruing or arising to the non-resident in British India within the meaning of S. 4 (1) of the Income Tax Act:The court examined the facts of the case where the residents of British India entered into speculative contracts of forward purchase and sale of groundnut oil, kernel, and turmeric with non-residents (M/s. Rupchand Chhabildas and Co., a firm at Sangli, a Native State). The non-residents sent market reports to the residents, who then instructed the non-residents via telegram to buy or sell commodities. The non-residents would then execute the transactions and inform the residents. The transactions were purely speculative, with no actual delivery of goods, and profits were determined by the difference between the contract rate and the prevailing market rate at the time the contract was closed or the due date arrived.The court referred to judicial interpretations of the terms 'accrue' or 'arise' in the context of income tax, noting that these terms do not mean actual receipt of income but rather the right to receive income. The court cited previous cases, such as 'Commissioner of Income Tax, Bombay v. V. Chunilal B. Mehta' and 'Commissioner of Income Tax, Madras v. Anamallais Timber Trust Ltd.', to illustrate that the place where the contract is concluded and where the acts under the contract are performed can influence where income is considered to have accrued or arisen.In this case, the court determined that the contracts were concluded at Sangli, where the non-residents executed the transactions and telegraphically informed the residents. The speculative nature of the transactions meant that the profits arose from the differences in market rates at Sangli. There was no evidence that the profits were to be paid or received in British India. Therefore, the court concluded that the profits did not accrue or arise in British India.2. Whether the residents are bound to deduct tax under the provisions of S. 18 (3-A) on the amounts paid by them to the non-residents:Section 18 (3-A) of the Income Tax Act mandates that any person responsible for paying a non-resident any sum chargeable under the Act must deduct income tax at the maximum rate. However, this obligation arises only if the income is chargeable to tax in India.Given the court's conclusion that the profits from the speculative transactions did not accrue or arise in British India, the non-residents were not liable to tax on these profits in British India. Consequently, the residents were not required to deduct tax under Section 18 (3-A) on the amounts paid to the non-residents.Conclusion:The court answered both questions in the negative, indicating that the profits from the speculative transactions did not accrue or arise in British India and that the residents were not required to deduct tax on the amounts paid to the non-residents. The respondents were ordered to pay the costs of the petition, fixed at Rs. 250/-.