1956 (5) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Liability of the petitioner under Section 18(3B) of the Indian Income-tax Act.
2. Determination of residency status of Clive Investment Trust Co. Ltd.
3. Applicability of Section 18(3B) to the transaction in question.
4. Availability of alternative legal remedies and the appropriateness of a writ of certiorari.
5. Interpretation of "non-resident" in Section 18(3B) and the error of law by the Income-tax Officer.

Issue-wise Detailed Analysis:

1. Liability of the Petitioner under Section 18(3B) of the Indian Income-tax Act:
The primary issue was whether the petitioner, Anglo-India Jute Mills Co. Ltd., was liable to pay the balance tax amounting to Rs. 78,728-7-0 under Section 18(3B) of the Indian Income-tax Act. The petitioner had already paid Rs. 1,48,812-8-0 and Rs. 1,822-7-0 to the Income-tax Authorities but refused to pay the additional amount demanded. Section 18(3B) mandates that any person responsible for paying a non-resident any sum chargeable under the Act must deduct income-tax at the maximum rate at the time of payment. The court needed to determine if the petitioner was obligated under this section.

2. Determination of Residency Status of Clive Investment Trust Co. Ltd.:
The court examined whether Clive Investment Trust Co. Ltd. was a "person not resident in the territories" as per Section 18(3B). According to Section 4A(c), a company is resident in the taxable territories if the control and management of its affairs is situated wholly within the territories or if its income arising in the territories exceeds its income arising outside. The court found that Clive Investment Trust Co. Ltd. had been assessed as "resident and ordinarily resident within the taxable territories" for the relevant year (1948-49), and the profits from the transaction were treated as business income, not capital gains.

3. Applicability of Section 18(3B) to the Transaction in Question:
The court observed that since Clive Investment Trust Co. Ltd. was assessed as a resident company, Section 18(3B) did not apply. The Income-tax Authorities had treated the profits from the transaction as business income, not capital gains, which led to a shortfall in the anticipated tax. The court held that it was unreasonable for the respondents to assess the company as a resident and simultaneously attempt to realize tax from the petitioner on the footing that the company was non-resident.

4. Availability of Alternative Legal Remedies and the Appropriateness of a Writ of Certiorari:
The respondents argued that the petitioner had an alternative legal remedy under Section 30(1A) of the Income-tax Act, which allows an appeal to the Appellate Assistant Commissioner. However, the court noted that an appeal would require the petitioner to first deduct and pay the entire sum claimed, which constituted a condition precedent. Citing the ruling in Himmatlal Hiralal v. State of Madhya Pradesh, the court held that such a requirement did not provide an adequate alternative remedy, thus justifying the issuance of a writ of certiorari.

5. Interpretation of "Non-resident" in Section 18(3B) and the Error of Law by the Income-tax Officer:
The court addressed the argument that "non-resident" in Section 18(3B) should be interpreted as physical residence rather than notional residence as defined under Section 4A(c). The court rejected this interpretation, emphasizing that where a word in the statute is defined, it must be used in the same sense throughout the statute unless specifically indicated otherwise. The court found that the Income-tax Officer had made an error of law by construing the term "non-resident" incorrectly and attempting to realize tax from the petitioner based on this erroneous interpretation.

Conclusion:
The court concluded that since Clive Investment Trust Co. Ltd. was assessed as a resident company, Section 18(3B) did not apply, and the petitioner was not liable to pay the additional tax demanded. The writ of certiorari was issued, quashing the notices under Section 46(5A) of the Income-tax Act. The court also issued a writ of mandamus and prohibition, preventing the respondents from enforcing the notices and realizing the sums mentioned therein from the petitioner. The rule was made absolute, with no order as to costs.