Business connection income of a non-resident was taxable, and the Indian company was deemed agent under the Act.

Interest arising to a non-resident from a business connection in British India was treated as profits or gains accruing or arising from that connection and therefore fell within the charge under Section 42 of the Indian Income Tax Act, 1922. Section 43 was applied as a deeming provision: a person served with notice and falling within the statutory description could be treated as the non-resident's agent for all purposes of the Act, including assessment under Section 42, even without actual receipt of the income on the non-resident's behalf. The statutory fiction was held to control the result.

---

---

Issues: (i) Whether interest arising to a non-resident from a business connection in British India was chargeable to income tax under Section 42 of the Indian Income Tax Act, 1922. (ii) Whether, under Sections 42 and 43 of the Indian Income Tax Act, 1922, the Indian company could be treated as the agent and assessee of the non-resident notwithstanding that it did not receive the interest on behalf of the non-resident.

Issue (i): Whether interest arising to a non-resident from a business connection in British India was chargeable to income tax under Section 42 of the Indian Income Tax Act, 1922.

Analysis: The interest paid by the Bombay company to the Hongkong company was held to be profits or gains accruing or arising to a person residing out of British India from a business connection in British India. The statutory language of Section 42 brought such income within the charge to tax in India.

Conclusion: Yes. The interest was chargeable to income tax under Section 42.

Issue (ii): Whether, under Sections 42 and 43 of the Indian Income Tax Act, 1922, the Indian company could be treated as the agent and assessee of the non-resident notwithstanding that it did not receive the interest on behalf of the non-resident.

Analysis: Section 43 created a legal fiction by deeming a person with a business connection who had been served with notice to be the agent of the non-resident for all purposes of the Act. That deeming provision placed the person within the position of agent and assessee under Section 42, even though the person was not in actual receipt of the income on behalf of the non-resident. The narrower reading adopted below was rejected because the explicit words of Section 43 controlled the result.

Conclusion: Yes. The Indian company could be deemed to be the agent and assessee under Sections 42 and 43.

Final Conclusion: The statutory deeming provision applied with full force, so the non-resident's income was taxable in India and the Indian company was liable to be treated as the agent and assessee for that purpose.

Ratio Decidendi: A person falling within Section 43 of the Indian Income Tax Act, 1922 is deemed to be the agent and assessee of the non-resident for the purposes of Section 42, even if the person does not actually receive the income on behalf of the non-resident.

---