1961 (2) TMI 3 - SC - Income Tax

Supreme Court sets aside High Court order, rules assessee liable for income-tax

Commissioner Of Income-Tax, Bombay City Versus Dharamdas Hargovandas

The Supreme Court allowed the appeal, setting aside the High Court's order. It held that the assessee was liable to pay income-tax on the sum of Rs. ... Whether on the facts it can be said that income had been brought into or received in Bombay by the assessee? Held that:- This being a case of receipt, there can be no doubt that income etc. was received by the respondent and the indirect method employed in this case for receiving the money would none the less make it a receipt by the respondent himself. We are, therefore, of opinion that the respondent is liable to pay income-tax on the sum of ₹ 50,000 under section 4(1)(b)(iii) of the Act and the question framed, therefore, must be answered in the affirmative. The result is that the appeal is allowed and the order of the High Court set aside. Issues Involved:1. Whether there was any remittance by the petitioner to Bombay within the meaning of and assessable under section 4(1)(b)(iii) of the Income-tax Act.2. Interpretation of the term 'received' in the context of section 4(1)(b)(iii).3. Whether the income brought into the taxable territories by the assessee was taxable under the Income-tax Act.Detailed Analysis:1. Remittance by the Petitioner to Bombay:The core issue was whether the assessee had remitted income from Bhavnagar to Bombay, making it taxable under section 4(1)(b)(iii) of the Income-tax Act. The Tribunal had found that the assessee and his brother had large sums deposited with the Bhavnagar mills, which were profits earned earlier. These deposits were transferred to the Bombay mills through benamidars. The Tribunal concluded that Rs. 50,000, representing the assessee's share, was remitted to Bombay and was taxable. The High Court, however, held that the income is taxable only when brought into or received in the taxable territories by the assessee himself, not when received on his behalf.2. Interpretation of 'Received':The High Court's interpretation was that the substitution of one debtor for another did not constitute a receipt of money by the assessee in Bombay. The Supreme Court examined the relevant portion of section 4(1) which includes all income 'received or deemed to be received in the taxable territories by or on behalf of such person.' The Court noted that for clause (b)(iii), the receipt need not be the first receipt. The income, having accrued outside the taxable territories and later brought into the taxable territories, would be chargeable to income-tax.3. Taxability of Income Brought into Taxable Territories:The Supreme Court found that the income was indeed received in Bombay. The assessee drew a cheque on the Bhavnagar mills' account in the Bank of India Ltd., Bombay, and handed it to the Bombay mills, which credited it to the benamidars' accounts. The Court held that this constituted a receipt of income in Bombay. The method employed, though indirect, amounted to the receipt of income by the assessee. The Court referenced Bipin Lal Kuthiala v. Commissioner of Income-tax, where it was held that indirect methods of receiving money still constituted receipt by the assessee.Judgment:The Supreme Court allowed the appeal, setting aside the High Court's order. It held that the assessee was liable to pay income-tax on the sum of Rs. 50,000 under section 4(1)(b)(iii) of the Income-tax Act. The appellant was awarded the costs of the appeal and in the court below.Separate Judgment by Sarkar, J.:Sarkar, J., delivered a separate but concurring judgment. He simplified the facts and focused on whether the assessee 'brought into' or 'received' the income in Bombay. He agreed that once income is received, it cannot be received again but can be brought into the taxable territories. He concluded that the assessee had brought the income into Bombay by utilizing the income in Bhavnagar for making an advance in Bombay. Thus, he concurred that the assessee was liable under section 4(1)(b)(iii) to be taxed on the amount of the cheque as income brought into the taxable territories.Conclusion:The appeal was allowed, and the question referred was answered in the affirmative. The Supreme Court held that the income remitted from Bhavnagar to Bombay was taxable under section 4(1)(b)(iii) of the Income-tax Act.