TaxTMI 
TaxTMI 
1931 (3) TMI 30
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.... Tax on the income derived by it from the working of the Pondicherry Railway under Section 4, Income Tax Act as income accruing or arising or received in British India? (c) Whether the Pondicherry Ry. Co. Ltd. carries on business in British India within the meaning of the Income Tax Act? and (d) Whether in any event the income of the said company that. is liable to assessment to Income Tax is only that portion which is payable to it under the concession between it and the French Colonial Government? 2. The Commissioner, as required by the Act, stated his opinion on the questions referred which was to the effect that Questions (b) and (c) fell to be answered in the affirmative and Question (d) in the negative. 3. In the High Court the learned Chief Justice (Sir Murray Coutts Trotter) was of opinion that Questions (b) and (c) should be answered in the negative, but the majority of the Court (Odgers and Beasley, JJ.) were of opinion that these-questions should both be answered in the affirmative. This accordingly became the decision of the Court. As regards Question (d) the Court was unanimously of opinion in the negative. 4. The assessments having thus been upheld the Court un....
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....The company duly constructed the projected line of railway, which was entirely situated in French territory, and effected the junction at the frontier with the system of the South Indian Railway. As empowered in the convention with the French Minister the company entered into an agreement dated 25th March 1879, with the South Indian Railway Company Limited whereby the latter undertook to work, manage and maintain the Pondicherry Railway. The agreement in force between the two railway companies at the time of the assessments in question was dated 30th December 1890. Such agreements between an owning company and a working company are familiar in railway practice and may take various forms. Examples which have come before the Courts are discussed in their legal bearings in Sevenoaks &o. Railway Co. v. London, Chatham and Dover Railway Co. (1879) 11 Ch. D. 625, South Behar Bail-tuay Co. v. Inland Revenue Commissioner (1925) A.C. 476, Inland Revenue v. Edinburgh and Bathgate Railway Co. (1926) S.C. 863 and Inland Revenue v. Dublin and Kingstown Raihvay Co. (1926) 5 Accountant's Tax Cases 721. The working agreement in the present case is on simple lines. The South Indian Company unde....
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....ives an honorarium of £21 a year from the Pondicherry Company 'for services rendered. 14. The Chief Engineer and the General Traffic Manager of the South Indian Company are also ex-officio officers of the Pondicherry Company and receive an honorarium of £10 10s. each. The revenue accounts of the Pondicherry Company are prepared by the Chief Auditor of the South Indian Company acting as Chief Auditor of the Pondicherry Company. 15. The Pondicherry Company has an office at Triehinopoly with a sign-board. 9. Exhibit C is a letter dated 5th April 1923, addressed from London by the Secretary of the Pondicherry Company to Mr. Scott (Mr. Rothera's predecessor', "Agent, Pondicherry Railway Co., Ltd., Triehinopoly," enclosing a statement of the expenses of administration of the company in England for the year. The letter proceeds: The figures now furnished will enable you to prepare the Revenue account for the year ending 31st March 1923, showing the amount of net profits divisible between the French Colonial Government and the company. When this has been done you will be good enough to pay over to the French authorities the moiety of the net profits....
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....ness carried on by him and prescribes that such profits or gains shall be computed after making allowance for inter alia (ix) any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains. "Business" is defined in Section 2(4) as including any trade commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, 14. In the Court below the question whether the assessed income of the Pondicherry Company accrued or arose in British India within the meaning of the Act was much discussed, and the opinion of the majority of the Judges as embodied in the order of the Court of 26th March 1929, was that it did so accrue. Their Lordships do not find it necessary to pronounce upon this aspect of the case and have come to no conclusion with regard to it, for they are satisfied that the income in question was " received " in British India within the-meaning of the statute, which is sufficient for the determination of the company's liability. 15. The argument presented by Mr. Mick-lethwaite for the appellants was to the effect that the facts when critically exami....
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....en the Pondicherry Company and the French Government in terms of the convention and this is not a mere matter of dividing it by two for as appears from Ex. D, the share remitted to London is not the same as the share remitted to the French Government. It is one half of the net profits as ascertained in terms of the convention that the French Government receives and the computation of this half involves calculation on the part of Mr. Eothera as the agent of the Pondicherry Company. He is instructed from London to " pay over to the French authorities " their moiety. How he can obey this instruction and pay over what, on the appellants' submission, he has not received requires for its appreciation a metaphysical subtlety remote from the prosaic realm of Income Tax law. How it may also be asked can he purchase a draft on London unless he has the wherewithal to pay for it? The attempt to present Mr. Eothera as an animated post office fails when it is realized that his functions far transcend the mere mechanical act of transmitting a sum to its recipient. He is the paid agent at Triohinopoly of the Pondicherry Company carrying on their agency in an office bearing their name....
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....ere their business is carried on should be left open, in view of possible ulterior consequences, and their Lordships make no pronouncement on the point. 21. Question (d) relates to the quantum of the assessment. The statute permits the assessee in computing the profits or gains of any business carried on by him to deduct: any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains, 22. The Pondicherry Company is taken bound in the convention with the French Minister to "make over" to the Colonial Government "one half of the net profits" of the undertaking arrived at in the manner prescribed in the convention. It is claimed for the company that when it makes over to the Colonial Government their half of the net profits it is making an expenditure incurred solely for the purpose of earning its own profits. The Court below has unanimously negatived this contention and in their Lordships' opinion has rightly done so. A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits. It assumes that profits have first come into....