AI Drafter 
TaxTMI 
TaxTMI 
1925 (9) TMI 2
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.... The facts regarding the assessee and the assessment are set forth in the following paragraphs. Messrs. Steel Brothers and Company, Limited, are a limited company registered in London under the English Companies Act. The headquarters of the business is in London. The company claims to be, and it is admitted that it is a non-resident of British India. In addition to their business activities in the United Kingdom and in British India, Messrs. Steels carry on business in Siam. Part of their income is also derived from investments in the United Kingdom. Income from both these sources, viz, business carried on outside of British India and investments in the United Kingdom, do not come under the scope of the Income-tax Act and are not concerned in the present reference. Part of Messrs. Steels' income also is derived from business wholly carried on within British India. As a type of this class of business we may take, for instance, the purchase of paddy in Burma, the milling of it in Burma and the sale of the resulting rice in Bombay. Income from this class of business is admittedly liable to Indian income tax and it also is not concerned in the present reference. The third cl....
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....re the subject both of Messrs. Steels trade within India and also of their export trade. As regards rice Messrs. Steels purchase paddy in Burma which is milled in their mills in Burma. Of the three resulting products, white rice, broken rice, and bran, all three, may be exported. But it does not follow that if one of the products resulting from the milling of a particular parcel of paddy is exported that the other products will also be exported. They may be sold locally. The three products, white rice, broken rice and bran from a particular parcel of paddy may all be sold in India or they may all be exported; or any of the intermediate permutations and combinations between export and local sale may take place. In the department of Cotton and Produce the principal commodities dealt in are cotton and groundnuts. As regards cotton raw cotton (kappas) is purchased and ginned in Messrs. Steels' mills, there sulting product being cleaned cotton and cotton seed. The cleaned cotton is baled. Some of it is exported to Europe, some of Japan, and some of it is sold in India. Part of the cotton seed is pressed, the resulting products being cotton-seed oil and cotton seed oil-cake. The c....
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....) Profit on Insuarance in London ... 2,507 16 9 (e) Loudon Commission a/c I. B. P ... 3,667 8 11 (f) Sales Commission, etc. a/c Attock Oil Company Limited 8,354 13 2 (g) London Commission on Stores shipped ... ... 7,199 0 0 It is necessary to examine these items seriatim. It will also be necessary to subdivide some of the items into different categories from the point of view of liability to income-tax. As regards the two items: GBP s. d. (a) Profit on Burma Rice in London ... ... 68,218 14 11 (b) Profit on Timber in London ... 14,163 0 0 the following draft of the present paragraph was made by me after interviews with Messrs. Steels' representative and was submitted by me to Messrs. Steel Brothers for their remarks: The first two items : GBP s. d. (a) Profit on Burma Rice in London ... 68,218 14 11 (b) Profit on Timber in London ... 14,163 0 0 appear to be....
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....our London house who finance shipments and sell the rice in the various markets to which they have access by virtue of their establishment in London. Such profit we hold does not accrue or arise in India. We consider it necessary that the above facts should be brought out in the Statement of Reference. The next item in question, viz., GBP 6,816-18-8 "Profit Cotton and Produce in London" is arrived at differently. Steels' method of accounting for this department of their business is different to that followed in the case of rice and timber. Formerly up till 1920 the Cotton and Produce department of Messrs. Steels' business was carried on through the medium of a limited company, the Jamal's Cotton and Produce Company, Limited, in which Messrs. Steels held half the shares and of which Messrs. Steels were Managing Agents. This company is now defunct and its business has been taken over by Messrs. Steels and is run by one of their departments. But the former method of accounting as between Steels, London, and this department of the business in Burma has persisted. This is that Messrs. Steels, London, in consideration for the work done at the London end, charge Messrs. ....
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....urance effected by them in London on Attock Oil Company's account ... 740 0 5 (c) Commissions earned by Steels' Export Department in London on Stores, etc., purchased and shipped from the United Kingdom to India ... 1,239 19 2 Total 8,354 13 2 The item "London Commission on stores shipped GBP 7,199-0-0" is described by the Company as arising from "Commissions charged by the Export Department, London, on General Goods, Stores, etc., purchased by London Office and shipped to Steels, Rangoon." As has been stated above the main part of the produce exported by Messrs. Steels in all the three departments of their business concerned consists of produce converted or worked up by them in Burma. But, again in all the three branches of their business, part of the produce exported was purchased by Steels in Burma in the same form in which it was exported. It is possible that it will be necessary to differentiate for the purposes of the present reference between each of the two classes of business. In their books Messrs. Steels do not maintain separate accounts for the two classes of business. The extraction of figures ....
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....not in any way affect the liability or otherwise to income-tax of the profits concerned. There is nothing in this department of Messrs. Steels' business that is fundamentally different to the business done by the Rice Department and Timber Department. The decision of the Court on the liability to Indian income-tax of the profits of the Rice Department and of the Timber Department will be applicable to the profits of the Cotton and Produce Department. The remaining items appear to involve S. 42 (1) of the Act. As regards the items "Profits on Insurance in London" and "London Commission on Stores shipped," Messrs. Steels, London, and their branch, Messrs. Steels, Rangoon, are the two parties concerned. In connexion with the other items, it is necessary to examine the relations between Messrs. Steels and (a) the Indo-Burma Petroleum Company, Limited; (b) the Attock Oil Company, Limited; and (c) the Burma Company, Limited. The Indo-Burma Petroleum Company, Limited, was originally founded by Messrs. Steel Brothers and Messrs. A. S. Jamal Brothers, each of whom held half of the issued shares. The original authorized capital of the Company was Rs. 1,00,00,000 of which Rs. 93,38,000....
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..... I think it best to refer to each item separately and accordingly submit the appended statement of the questions referred: Questions Referred. I. Is the whole or part of the sum of GBP 68,218-14-11 described as London Profits on Rice and consisting of GBP 54,575-0-0, profits on produce, which has undergone some process of conversion or working up in Messrs. Steels' hands in Burma and GBP 13,643-14-11 profits on produce purchased in Burma and exported in the same form as when purchased, liable to Indian income-tax? II. Is the whole or part of the sum of GBP 14,163-0-0 shown as London profits on timber and consisting of GBP 11,330-8-0 being profits on timber which has undergone some process of conversion or working up in Messrs. Steels hands in Burma and of GBP 2,832-12-0 being profits on timber purchased in Burma and exported in the same form as when purchased, liable to Indian income-tax? III. Is the whole or part of the sum of GBP 6,816-18-8 (approximately) described as London profits on cotton and produce and consisting of GBP 5,453-10-11 (approximately) being profits on cotton and produce which has undergone some process of conversion or working up in Messrs.....
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....siness operations in Burma, especially in connexion with rice, timber and cotton. It was stated in Court that for some time the firm was assessed on a certain percentage of its net profits by consent and without prejudice to the strict legal liability, but the Income-tax authorities considered that this percentage was not high enough. The Company contends that none of its profits which form the subject of reference are assessable to income-tax in British India. The Commissioner of Income-tax, on the other hand, considers that all the heads of profit mentioned in his reference are assessable. The question raised is one of very great legal and practical importance, and it has been very fully and ably argued before us for three days. A great many cases have been cited before us, both English and Indian, but it will be only necessary, for the reasons hereinafter given, to refer to a few of these. The assessment was made under the provisions of S. 4 (1), read with S. 42 (1) of the Indian Income-tax Act, 1922. The provisions of S. 4 (1) run as follows: Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in S. 6, fro....
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....er or not the Company traded in New South, Wales, so as to come within sub-S. (1), if there was income, it was clearly income from lands of the Grown held on lease and so came under sub-S. (1), and also was income from some other source in New South Wales, and so came under sub-S. (4). As to whether there was income: It appears to their Lordships that there are four processes in the earning or production of this inc me: (i) thy extraction of the ore from the soil; (ii) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (iii) the sale of the merchantable product; (iv) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages. The first process seems to their Lordships clearly within sub-S. (3) and the second or manufacturing process, if not within the meaning of 'trade' in sub-S. (1), is certainly included in the words 'any other source whatever' in sub-S, (4). So far as relates to these two processes, therefore, their Lordships think that the income was earned and aris....
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....al. 1= A. I. R. 1925 Cal. 34 (F. B.): It will be seen that under the English Acts, it is essential that the profits should arise from the exercise of the trade within the United Kingdom. In the Indian Acts, (VII of 1918 and XI of 1922), however, in the case of any person residing out of British India all profits or gains accruing or arising to such person whether directly or indirectly through or from any business cnnexion in British India shall be deemed to be income accruing or arising within British India. There is no such provision in the English Acts, and that distinguishes the English Acts, and the cases decided thereunder from the Indian Acts. With regard to non-residents, the only question in the English Acts is whether there is a trade exercised in the United Kingdom. This, as we have seen, is not the case under the Indian Acts. We may here state that, though the Madras decision, already quoted, in Boards of Revenue v. Madras Export Co. A. I. R. 1923 Mad. 422, was under the Indian Income-tax Act of 1918, for the purposes of the question before us that Act does not differ from the Act of 1922, with which we are dealing. A significant point is that the words "or ....
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....st and second questions referred as follows: Under the authority of Commissioners of Taxation v. Kirk [1900] A. C. 588=69 L. J. P. C. 87=83 L. T. 4, we hold that the fact of the produce being sold in London and the money being received there does not prevent profits or gains accruing, or arising, or being deemed to accrue or arise in British India from being taxable under the Indian Income-tax Act. We are also of opinion that no distinction, so far as liability to income-tax is concerned, can be drawn between profits on produce, which has undergone some process of conversion or "working up" by the assessee in Burma, and profits on produce purchased by the assessee in Burma and exported in the same form as when purchased. But a serious practical question arises as to whether all the net profits are liable to Indian income-tax. As we have already seen, their Lordships of the Privy Council did not so decide in the case of Commissioners of Taxation v. Kirk [1900] A. C. 588=69 L. J. P. C. 87=83 L. T. 4. At page 42. Mr. Justice Mukerji, in the Full Bench case of Rogers Pyatt Shellack Company v. Secretary of State for India 52 Cal. 1= A. I. R. 1925 Cal. 34 (F. B.), seems to indic....