TaxTMI 
TaxTMI 
1949 (9) TMI 23
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....t, on cost. 3. The Income Tax Officer dealing with the assessment for the relevant year came to the conclusion that on the facts which I have set cut the provisions of Section 42, Income Tax Act, were applicable and he made an allocation of profits under Section 42(3) on the basis that 50 per cent, of the profit made on sales effected in Indian States outside British India was attributable to the business operations carried on in British India. (It is to be observed that there is a serious misprint in line 24 at page 1 of the paper-book. "Sales effected in British India" should read, "Sales effected outside British India.") 4. The assessee appealed to the Appellate Assistant Commissioner, but the appeal was dismissed and a further appeal was preferred to the Tribunal. Before the Tribunal it was argued that Section 42(3), Income Tax Act, had no application to the case as that section applied only to "nonresidents," Further it was contended that if the section did apply the proportion of profits allocated to the manufacture in India was too great. The Appellate Tribunal, however dismissed the appeal holding that Section 42(3) had been correctly applied....
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....tish India." 11. It was urged before the Income Tax authorities and the Appellate Tribunal that Section 42 could not possibly apply to residents of British India and in support of that contention the case of Commissioner of Income Tax, Bombay v. Western India Life Insurance Co. Ltd. was relied upon. This was a decision of a Bench of the Bombay High Court consisting of Kania and Chagla JJ. as they then were. The facts of the case were as follows. The assessee, an insurance company, resident in British India, claimed that under the third proviso to Section 4 (1), Income tax Act, 1922, it was entitled to an exemption of ₹ 4,500 from its foreign income, being interest on securities with a bank in London not brought into British India. The in-come-tax authorities held that as the income could be described as deemed to accrue or arise to the assessee within British India by reason of Section 42, the income fell under Section 4 (1) (b (i) and not under Section 4 (1) (b) (ii) and therefore proviso 3 to Section 4 (1) did not apply. The Bench however held that Section 42 did not apply to the case, that the income should be considered at falling under Section 4 (1) (b) (ii) and no....
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....nded that these catch words could be used to explain the meaning of sections against which they appear. For my part, I cannot allow this. As explained by Baggallay L. J. in Attorney-General v. Great Eastern Ry. Co. (1879) 11 Ch. D. 449 , marginal notes are not a part of an Act of Parliament. The Houses of Parliament have nothing to do with them and I agree with the learned lord Justices in that case--Bramwell), James, and Baggallay--that the Courts cannot look at them. Their imperfections, spoken of by Bramwell L. J., are illustrated by the note to Section 9 of this Act." 17. It appears to me therefore that the marginal note cannot assist the Court in arriving at the true meaning of this section. In any event, Section 12 of Act XXII [22] of 1947 provides that the marginal note to Section 42 should be deleted and the words "Income deemed to accrue or arise in British India" be substituted in place thereof. 18. However, it is clear that originally part of this section did apply only to non-residents and the opening words of Section 42 before it was amended in 1939 were "In the case of any person residing out of British India." Had those words remained it wo....
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....s to me that the subsection as amended in 1939 clearly on the face of it applies to both residents and non-residents. 21. The matter however does not rest there because Sub-section (2) only applies to persons not resident or not ordinarily resident in British India, but it is to be observed that the subsection opens with those very words : "Where a person not resident or not ordinarily resident in British India, carries on business with a person resident in British India, and it appears to the Income Tax officer etc." There it is clear that the sub section applies only to non-residents and if it was necessary so to make it clear in Sub-section (2) it appears to me that it was equally necessary to make it clear in Sub-section (1) if that Sub-section was intended only to apply to non-residents. It seems to me that it was more necessary than ever to make the position clear with regard to Sub-section (1) because words which strictly limited the operation of that Sub-section to non-residents had bean deleted by the amendment and general words put in statute in the place of them. 22. Sub-section (3) of Section 42 is in the widest terms and there is nothing whatsoever in tha....
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....could be properly applied in this case in assessing the profits of the assessee. This was a case where all the operations of the assessee were not carried out in British India and therefore the profits and gains of the business assessable in British India could be calculated as on such profits and gains as were reasonably attributable to that part of the operations carried on in British India. 27. That being so, the question submitted to the Court must be answered in the affirmative. 28. The Commissioner of Income Tax is entitled to his costs of this reference. Certified for two counsel. 29. Chatterjee J. -- Learned advocate for the assessee, Mr. A. C. Sen, has asked us to follow the judgment of Kania and Chagla JJ. in Commissioner of Income Tax, Bombay v. Western India, Life Assurance Co Ltd., [1945]13ITR405(Bom) . The judgment is an authority for the proposition that Section 42 only applies to non-residents. With great respect I beg to differ. 30. There are three grounds which compel me to differ from the view taken by the learned Judges of the Bombay High Court. 31. The first point is the history of the section itself. Originally Section 42 referred only to persons residin....
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....ns in Section 14. 34. Mr. Sen concedes that Section 14 is applicable to a resident. Therefore, the only way that a harmonious construction can be put on this statute so as to makes Section 14 consistent with Section 42 is to bold that Section 42 is not limited in its application to a non-resident. Otherwise reference to Section 42 would be wholly out of place in Section 14. 35. With the greatest respect to Kania J., it seems that undue emphasis has been laid on the marginal acts in Section 42, "Non-residents". His Lordship pointed out that it should be noted that while amending Section 42 the Legislature had still retained the marginal note "Non-resident" against that section and according to him Section 42 (c) should also be restricted to a non-resident. I should here refer to the judgment of the Judicial Committee in Thakurain Balraj Kunwar v. Jagatpal Singh 31 I. A. 132: (26 ALL. 393 P. C.). Delivering the judgment of the Board, Lord Macnaughten observed as follows : "It is well-settled that marginal notes to the sections of an Act of Parliament cannot be referred to for the purpose of construing the Act. The contrary opinion originated in a mistake, ....