Income earned through railway operations in India remained taxable despite guaranteed interest being received in London.

Guaranteed interest received in London was treated as income accruing or arising in British India because the profits of the railway undertaking were generated by operations in India. The London payment was characterised as only a provisional disbursement later recouped from Indian profits, so the place of actual receipt did not change the source or situs of the income for tax purposes. Income may therefore accrue or arise in British India even if received elsewhere where the real earning activity is carried on in India, and the amount was held liable to assessment in the assessee's hands.

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Issues: Whether the guaranteed interest received in London by the railway company was liable to assessment as income accruing or arising in British India under the Indian Income Tax Act, 1922.

Analysis: The reference turned on the character of the guaranteed interest paid by the Secretary of State under the railway contracts. The Court accepted that the profits of the undertaking were generated by the working of the railway in India and that the London payment was only a provisional disbursement recouped later from the Indian profits. On that footing, the place of actual receipt did not alter the source or situs of the income for tax purposes. The authorities considered showed that income may accrue or arise in British India even if it is received elsewhere, where the real earning activity is in British India.

Conclusion: The question was answered in the affirmative, and the amount was held liable to assessment in the hands of the assessee.

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