TaxTMI 
TaxTMI 
1968 (2) TMI 30
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....been assessed as a non-resident in both the years in question. During the relevant years interest amounting to pound 35,576.94 and pound 42,638.23 were received by the assessee in the United Kingdom from Messrs. Calcutta Electric Supply Corporation, which is a company incorporated in England with its head office in London and was during the relevant periods carrying on business of supplying electricity in the city of Calcutta and certain other places in India. The corporation maintained a current bank account with the assessee's head office in London at 26, Bishops Gate, London, E.C. 2. On the 24th May, 1950, the corporation applied to the assessee bank for grant of temporary financial accommodation to the extent of pound 1 million. The reason for seeking the financial accommodation as given in the application was that, according to the balance-sheet on the 31st December, 1949, there was a contingent liability of pound 2.4 millions in respect of contracts for capital expenditure already placed at that date. It was stated in that application that such liability would mature progressively during the course of the next eighteen months and that the same had been incurred in connection....
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....f one complete transaction. The assessee appealed to the Appellate Assistant Commissioner from the judgment of the Income-tax Officer. The Appellate Assistant Commissioner confirmed the Income-tax officer's order but modified the quantum. He called upon the assessee to furnish figures of interest accruing on the daily balance of the overdraft specifically utilised for the purpose of purchasing plants and machinery which came to India. The assessee furnished those figures and data. The quantum of the taxable interest received from the corporation was reduced to pound 16,297 and pound 6,225 for these two years respectively. In respect of the interest chargeable to tax received from the tea companies it was reduced to pound 2,612 for the assessment year 1953-54. Both the assessee and the revenue authorities preferred appeals to the Tribunal against such finding and the decision of the Appellate Assistant Commissioner. The assessee in its appeal challenged the validity of the assessment of tax of interest received by it from the corporation. But with regard to the interest received from the tea companies the assessee accepted the order of the Appellate Assistant Commissioner. The dep....
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....nd the corporation and not simply an act of the corporation without any reference to the assessee. The Tribunal found that the transference of the machinery to India was the sole concern and responsibility of the corporation alone with which the assessee was completely unconcerned. The Tribunal accordingly allowed the assessee's appeals and dismissed the appeals of the revenue department. The department has now come with the above questions in this reference. The crucial question in this reference is the interpretation of section 42(1) of the Income-tax Act and particularly the expression " in case or in kind " occurring in sub-section (1) thereof. Broadly analysed, section 42(1) covers five different classes of income which are said to be income deemed to accrue or arise within the taxable territories. Paraphrasing section 42(1) and leaving aside matters not relevant for the purposes of this reference, it reads as follows : " All income accruing or arising whether directly or indirectly--- (1) through or from any business connection in the taxable territories ; or (2) through or from any property in the taxable territories ; or (3) through or from any asset or source of inc....
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....nguage reads, is income which is deemed to accrue or arise within the taxable territories although it is not so in fact. It is an income which is arising outside but which by the statute is deemed to accrue or arise within the taxable territory. But then this deeming provision is careful to describe the connection or the nexus between such income and the taxable territory. That will be plain from the five different classes of income stated on the analysis of the section itself. The nexus in the first class is the business connection in the taxable territory. The nexus in the second class is the property in the taxable territory. The nexus in the third class is the asset in the taxable territory. The nexus in the fourth class is the money lent at interest but brought into the taxable territory in cash or in kind meaning thereby that that money or the interest must be brought into the taxable territory, no doubt either in cash or in kind. The nexus in the fifth class is the capital asset in the taxable territory. It is also essential to bear in mind in order to appreciate this nexus or the axis on which the income is deemed to arise within the taxable territory that it is the assesse....
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....ut the world. Money, when used in a will, has been construed by courts in its strictest sense unless there was a context which permitted a wider interpretation. In that strict and rigorous sense money has been held to mean not only cash and in kind but also all forms of money due, such as cash at the bank, dividends due, bills, draft and similar choses-in-action. Meredith J. in In re Jennings : Coldbeck v. Stafford made the following celebrated observation : " The judiciary has waged a long fight to teach testators that ' money ' means cash, but as the ordinary testator who makes his own will does not study the law reports, he proceeds in constantly using the word in a wider sense and it is time that in such cases the popular meaning prevailed over the legal one. It has taken only about 13 or 14 years for the judicial mind to change. In the decision in Perrin v. Morgan, Viscount Simonds, Lord Chancellor, observed : " The present question is not, in my opinion, one in which this House is required on the ground of public interest to maintain a rule which has been constantly applied but which it is convinced is erroneous. It is far more important to promote the correct construction....
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....ded by the Privy Council there confirming the decision of the Bombay High Court that the income was not received in or brought into India within the meaning of section 4(2) of the Income-tax Act and the assessees were not accordingly liable to pay income-tax on this amount. No doubt, this decision must be read subject to the Explanation to section 45 of the Act after the Amendment Act of 1939. But certain principles there discussed are of crucial importance for the purposes of this case. Lord Romer, in delivering the judgment of the Privy Council, approved the observation of Lord Lindley in Gresham Life Assurance Society Ltd. v. Bishop, where Lord Lindley had said : "...a sum of money may be received in more ways than one, e.g., by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass." Lord Romer of the report in [1940] 8 I.T.R. 95 makes the following significant observations : " It is not and cannot be suggested in the present case that the mill stores and machinery were purchased in ....
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.... A. H. Wadia v. Commissioner of Income-tax, a decision of the then Federal Court of India. Three of the learned judges, Kania C.J., Mahajan J. and Mukherjea J., came to the conclusion in that case that the provision in section 42(1) of the Indian Income-tax Act was not ultra vires on the ground that it was extra territorial in operation, for, the nexus, according to the three learned judges, was the bringing of the money into India with the knowledge of the lender and borrower giving the real territorial connection. Patanjali Sastri J. disagreed with that view that bringing of money by the borrower could not constitute a sufficient territorial connection. Kania C.J., of the report, analysed section 42(1) of the Income-tax Act and showed the nexus or the connection in each case on the lines which we have already indicated above. Interpreting section 42(1) on the point which is present before us, Kania C.J. observed at page 73 of the report as follows : " The exact words used in the section are 'arising from any money lent at interest and brought into British India in cash or in kind'. In my opinion it is proper to read this as one head and as indicating one composite transaction. T....
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....the English bankers, transferred the amount of dollars in question in each case to the account of the Bank of England with the Federal Reserve Bank of the United States. The taxpayer was assessed to income-tax. The House of Lords held that the sterling credits were sums received by the taxpayer in the United Kingdom out of his American income which had pro tanto been used to acquire them and that in this sense he had brought forward his American income to the United Kingdom. It is pointed out in this decision by the House of Lords that, for the purposes of rule 2 of Cases IV and V of Schedule D of the British Income Tax Act, the bringing in of a person's income meant nothing more than the effecting of its transmission from one country to the other by whatever means, the agencies of commerce or finance might make available for that purpose. If that transmission took place, it was immaterial whether anything, items of property or instrument of transfer, had actually been brought into the country or not. Nor was it said to be relevant to ascertain what had happened to the taxpayer's money in the country where the income arose. The language of the Act and the rules there construed by t....
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.... to the acquisition of capital goods. Therefore, the surplus attributable was capital accretion and not profit taxable in the hands of the assessee : see the observations of the Supreme Court particularly at page 410 of that report. This question of capital assets has come up in the matter of interpretation in other decisions. We shall notice one decision of the Madras High Court in A. Lakshmanan v. Commissioner of Income-tax. It was held there, on the facts of that case, that the assessee had capitalized whatever surplus income was in his hands in the foreign country and there was no material upon which the Tribunal could reach the conclusion that the capitalization was not effected. The court came to the conclusion that the amounts received were capital in nature and hence not assessable. But these decisions really turn on the question. whether an amount is capital or income, a point with which we are not concerned in this reference. A point was made by Mr. Pal, appearing for revenue, that the lender, the assessee in this case, knew from the correspondence I disclosed that the whole object of obtaining this loan and paying interest for it, was to buy capital goods in England suc....
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....ct means that which retains its character or quality or its kind as money, namely, in commercial forms recognised in the commercial world such as bills of exchange, I.O.Us. or even gold and silver bars or ingots. It will be illegal and unjustified in our view to extend the meaning of the expression " money in kind " in section 42(1) of the Income-tax Act beyond these accredited uses of money accepted, used and recognised as such in the commercial world and in the usual transactions. We, therefore, hold on the interpretation of section 42(1) of the Income-tax Act that the plant, goods, machinery or the generator brought in this case was neither money in cash nor money in kind nor income within the meaning of section 42(1) of the Income-tax Act and it does not mean any and every article into which the money had been converted. It has still to be " money in kind " and not money converted into goods, without anything more. For these reasons and on these authorities, we answer the first question in the affirmative holding that the Tribunal was right in coming to the conclusion that section 42(1) of the Income-tax Act, 1922, had no application to the assessee's case in respect of the in....
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....the tea company as made by the Appellate Assistant Commissioner was in accordance with the law. The Commissioner will pay the costs of this reference. Certificate for two counsel. K. L. Roy J.--While respectfully agreeing with the judgment delivered and the answers given by my Lord to the questions referred, I wish to add a few words of my own. In support of his contention that the expression " money in kind " in section 42(1) of the Act would include anything into which the money has been converted, Mr. Pal referred us to the meaning of the expression " in kind " in Murray's Oxford Dictionary, 1901 Edn., Vol. V, as follows : " Item 15 : In kind : in the very kind of article or commodity in question ; usually of payment ; in goods or natural produce as opposed to money. " In my opinion, the meaning attributed to the word " in kind " in the Oxford Dictionary is that the article or commodity in question must be of the very kind or of the same kind. It is only in the case of payment in kind that goods or natural produce, as opposed to money, is implied. Even assuming that the expression " money in kind " includes also the articles into which the money has been converted, as cont....