1959 (11) TMI 66 - HC - Income Tax

Summary

Issues: Interpretation of the East African Income Tax (Management) Act, 1952 regarding the attribution of income under sections 22 and 24.

Analysis:

1. The judgment discusses the provisions of the Income-tax Act, specifically sections 22 and 24, which attribute income to a person despite no actual payment or receipt of income. Section 22 deems the undistributed portion of a company's income as distributed among shareholders, while section 24 treats income paid to or for the benefit of a child of the settlor as the income of the settlor. The central issue is whether the deemed dividend under section 22 should be considered a payment for the purposes of section 24.

2. The court deliberates on whether the notional payment under section 22 should be regarded as a payment to the child shareholder for the settlor's income calculation under section 24. The court analyzes the language of section 24 and concludes that as no actual income has been paid to the child, the notional dividends attributed to them are not within the scope of section 24 and cannot be treated as the income of the father.

3. The High Court and the Court of Appeal had differing interpretations, with the Court of Appeal suggesting that the statutory fiction of a payment under section 22 should be applied to section 24. However, the Privy Council rejects this view, stating that sections 22 and 24 are independent charging provisions with mutually exclusive charges. The court emphasizes that the dividend deemed under section 22 must be included in the child's total income and cannot be considered income paid to the father under section 24.

4. The judgment further examines the provisions of sections 22 and 24 to determine the meaning of "paid" in section 24. It highlights that the word "paid" in section 24 should be limited to actual payments received by the child or its trustee, as evidenced by the recovery rights and tax payment provisions outlined in the sections.

5. The court acknowledges potential anomalies arising from both parties' arguments but asserts that the sections cannot be read as part of a coordinated scheme. It suggests that any harmonization must be achieved through legislative enactment to address the complexities of their interrelation.

6. Ultimately, the Privy Council advises allowing the appeal, setting aside the previous court orders, and directing the respondent to amend the assessments in accordance with the court's opinion. The respondent is also ordered to bear the appellant's costs of the hearings and the appeal.