Foreign business income not taxable where profits neither accrue nor arise nor are received in British India.

Income from money-lending operations carried on outside British India by agents was not taxable under the Indian Income Tax Act, VII of 1918, because the profits neither accrued nor arose nor were received in British India. The Court held that the charging scheme depended on the place of accrual, arising or receipt, not on the proprietor's residence. Occasional general instructions from British India did not amount to carrying on the business there, and the statutory deeming provisions could not be stretched to tax income earned and retained abroad. Administrative practice under the earlier law supported this construction, and the assessee succeeded.

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Issues: Whether income from a money-lending business conducted outside British India through agents, and not received in British India, was taxable under the Indian Income Tax Act, VII of 1918.

Analysis: The decisive inquiry was whether the income could be said to accrue or arise in British India, or whether the business itself was carried on in British India. The Court read the charging scheme of the Act as resting on the place where income actually or notionally accrues, arises or is received, rather than on the residence of the proprietor. On the facts, the lending operations were carried on abroad by agents exercising their own discretion, with only occasional general instructions from the proprietor in British India. The Court held that such limited supervision did not amount to carrying on the business in British India. It further held that the statutory deeming provisions could not be extended to treat income earned and retained abroad as income accruing in British India. The long-standing administrative practice under the earlier enactment was also treated as supporting this construction.

Conclusion: The income was not taxable under the Act and the answer was in favour of the assessee.

Ratio Decidendi: Under the Indian Income Tax Act, VII of 1918, business profits are taxable only if they actually or deemedly accrue, arise or are received in British India, and mere residence of the proprietor or occasional supervision from British India does not make foreign business income taxable there.

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