Income accrues where its source lies: interest on Government securities remained taxable despite payment outside British India.

Interest on Government of India promissory notes was treated as accruing or arising in British India where the underlying loan was contracted and the principal was repayable there, even though payment and receipt were stipulated outside British India. The expression "accruing or arising" was read as referring to the source and place from which the income sprang, not merely the place of payment. On that construction, the interest remained within the charge under section 4(1) and was assessable to super-tax; receipt outside British India did not alter its British Indian source.

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Issues: Whether interest on Government of India promissory notes, payable and received outside British India but arising from a loan contracted in British India and repayable there, accrued or arose in British India under section 4(1) of the Indian Income Tax Act, 1922, and was therefore liable to super-tax under the Act.

Analysis: The income consisted of interest on a Government security and was derived from principal moneys invested in British India. The words "accruing or arising" were construed as distinct from "received" and as denoting the place and source from which the income sprang, not merely the place where payment was made. The fact that the interest was enfaced for payment outside British India did not displace its British Indian source, because the underlying loan was contracted in British India and the principal was repayable there. Sections 6, 8, 18(1) and 18(4) reinforced that interest on Government securities remained taxable even where actual receipt occurred outside British India.

Conclusion: The interest accrued or arose in British India within the meaning of section 4(1) and was liable to be assessed to super-tax. The answer was in favour of the Revenue.

Final Conclusion: The reference was answered against the assessee and the interest was held taxable in British India despite payment being stipulated outside British India.

Ratio Decidendi: For income-tax purposes, interest on a Government security arises where its underlying source is situated, and not merely where it is payable or actually received; receipt outside British India does not prevent taxation if the income accrues or arises in British India.

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