TMI Blog1940 (6) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ax submitted that this question should be answered in the affirmative. The High Court (consisting of Sir Lionel Leach, C.J., Madhavan Nair and Varadachariar, JJ.), decided that the submission of the Commissioner was right and answered the question in the affirmative. From this decision the appellant, the Bank of Chettinad, Ltd., has appealed to His Majesty in Council. The reference arose out of the assessment of the Bank of Chettinad, Ltd., Kanadukathan (hereinafter for the sake of brevity referred to as the Kanadukathan Bank ) as agent of the Chettinad Bank, Ltd., Pudukottai (hereinafter referred to as the Pudukottai Bank ), for the assessment year 1933-34. The assessment proceeded on the basis that certain profits or gains accrued to the Pudukottai Bank, resident out of British India, directly or indirectly through or from a business connection in British India and that under Section 42(1), Income-tax Act of 1922, such profits or gains were chargeable to income-tax in the name of the Kanadukathan Bank resident in British India, which was treated as the agent of the Pudukottai Bank under Section 43 for all the purposes of the Act. The material facts may be stated as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Burma of which one is at Rangoon, and one at Bentong in the Federated Malay States and one at Colombo. The Padukottai Bank carries no money-lending business at Pudukottai but it has a branch at Kualalumpur, situated about 30 miles from Bentong in the Feda- rated Malay States. It appears that between September, 1930, and February, 1933, loans amounting to ₹ 1,32,86,888 were made by the Pudukottai Bank to the Kanadukathan Bank. The loans were carried out through the Kualalumpur branch of the Pudukottai Bank and the Bentong branch of the Kanadukathan Bank. They fall under the following nine heads, as stated in the Reference made by the Commissioner of Income-tax; Rs. (1) 45,00,000 (2) 9,74,100 ($6,34,327) (3) 5,34,191 (4) 2,35,000 (5) 19,38,505 (6) 4,40,000 (7) 5,15,092 (8) 34,60,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might other- wise appear to be'. The question on this part of the case is not whether in substance the loan represented money lent by the Pudukottai Bank to the Kanadukathan Bank, but it is whether in fact the Pudukottai Bank lent the said money to the Kanadukathan Bank. Their Lord- ships have no doubt that on the facts of the case the said six items did represent loans made by the Pudukottai Bank to the Kanadu- kathan Bank, and that the money was used in the branch of the Kanadukathan Bank at Rangoon, which was then in British India. The fact that the transactions were negotiated through, the branches of the backs does not affect this question: the branches were not separate entities, but were parts of the two respective Banks, and it is obvious that the business so transacted by the two branches was the business of the two banks. The questions to be considered are whether on the facts of This case the Pudukottai Bank had a business connection in British India and whether the profits in question accrued or arose to the Pudukottai Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dukathan Bank represented a large part of the capital of the Pudukottai Bank, that the flow of business between the two banks was secured by the complete control exercised by the Raja and his family over the business of both banks, so that the loans could be safely made without security and for indefinite periods. In view of these facts their Lordships are of opinion that the High Court was right in holding that the Pudukottai Bank had a business connexion with the Kanadukathan Bank in British India during the year of assessment and they are further of opinion that the profits and gains, the subject-matter of the assessment, accrued to the Padukottai Bank directly or indirectly through such Business connexion in British India. There remains the question whether the Income-tax Commissioner was correct in treating the Kanadukathan Bank as agent of the Pudukottai Bank within the meaning of Section 43 of the Act. It is to be noted that the agent contemplated, by the section is, so to speak, an artificial creation, for it is provided that any person having a business connexion, with a person residing out of British India, upon whom the Income tax Officer has served a notice of his in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular area the American company's business, of selling the American company's manufactures. Although no contractual obligation exists by which the Bombay company is compelled to purchase any of the manufactures of the American company, the flow of business between the two companies is secured by the fact that the ultimate and complete control of the Bombay company is vested in the American Company, which owns all its shares. It was further held that the profits and gains in question accrued or arose to the American company directly or indirectly through or from a business connexion in British India. This case is material, because in their Lordships' opinion, if the appellant's contention in this appeal were correct, viz., that the business connexion existed only in respect of actual business which was transacted by the branches of the two banks outside British India, the above cited case should have been decided the other way in so far as it related to the matter now under consideration. For the above-mentioned reasons their Lordships are of opinion that this appeal should be dismissed and that the appellant should pay the respondent's costs of this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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