1970 (3) TMI 54 - HC - Income Tax

Tribunal rules on tax residency, interest, and deductions in landmark case.

The Tribunal's findings in the case concluded that the assessee was non-resident for the assessment year 1952-53, and therefore, outside the scope of ... Company, Residence Issues Involved:1. Whether the inference of the Tribunal that the assessee is non-resident for assessment year 1952-53, and outside the mischief of section 4A(c)(ii) is legal.2. Whether the inference of the Tribunal that the Brazilian interest receivable for 1953 was not assessable in 1954-55 as it could not be demanded is legal.3. Whether the interest on the 3% Sterling Promissory Note or the interest on the 3% Indian Rupee Promissory Note on which no tax was deducted at source under section 18 were at all chargeable to Indian income-tax and whether the assessee was entitled to a deduction in respect thereof and, if so, from what income, Indian, foreign or world.Issue-Wise Detailed Analysis:Issue 1: Non-Resident Status for Assessment Year 1952-53The Tribunal's finding that the assessee-company was non-resident for the assessment year 1952-53 was based on the income comparison between taxable and non-taxable territories. The assessee-company, incorporated in the UK and managed outside the taxable territories, claimed that its income from debentures of the Brazilian company exceeded the income within taxable territories for the year 1951. The Tribunal accepted the assessee's argument that the income of pounds 12,152 had arisen in 1951, not 1950, making the income outside the taxable territories larger and thus the company non-resident. The Revenue's contention that the income should be accounted for in 1950 was rejected based on the Tribunal's findings and legal precedents which state that income accrues when the right to receive it is enforceable.Issue 2: Brazilian Interest Receivable for 1953The Tribunal held that the interest receivable from Brazilian debentures for 1953 was not assessable in 1954-55 due to Brazilian exchange restrictions preventing payment in the agreed currency (pounds sterling). The Tribunal found that the interest did not become payable in 1953, and thus did not arise in that year. The Tribunal's decision was supported by legal principles stating that income accrues when the right to receive it is enforceable. Since the restrictions prevented payment, the interest could not be considered as having arisen in 1953.Issue 3: Interest on Promissory Notes and DeductibilityThe Tribunal addressed the deductibility of interest paid on two promissory notes:1. 3% Sterling Promissory Note: The interest paid to the parent company in respect of this note was not deductible because the assessee-company did not deduct tax at source as required under section 18. However, the Tribunal found that the interest was attributable to the dividend income earned in India and thus deductible from the Indian income for 1953. For 1951, when the assessee was non-resident, the interest was not deductible from Indian income.2. 3% Indian Rupee Promissory Note: The interest on this note, executed in New York for shares in an Indian company, was not deductible from Indian income for 1951 when the assessee was non-resident. However, for 1953, when the assessee was resident, the interest was deductible from the total world income.Conclusion:1. Question 1: Affirmative. The Tribunal's inference that the assessee is non-resident for the assessment year 1952-53 is legal.2. Question 2: Affirmative. The Tribunal's inference that the Brazilian interest receivable for 1953 was not assessable in 1954-55 is legal.3. Question 3:- Tax was not payable on Rs. 1,04,912 paid as interest on the 3% sterling promissory note in 1953.- Similarly, tax was not payable in respect of the interest paid for the 3% sterling promissory note in 1951.- The interest on the 3% Indian rupee promissory note was not deductible from the dividend income earned in India in 1951 when the assessee was non-resident.- Interest paid in respect of this promissory note in 1953 was deductible from the total world income of the assessee-company, as it was assessed as resident.The Commissioner will pay costs.