1937 (1) TMI 15 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 4(3)(viii) of the Indian Income Tax Act regarding agricultural income.
2. Application of Rule 24 for computing income derived from the sale of tea.
3. Analysis of Section 4(1) and Section 4(2) of the Indian Income Tax Act.
4. Examination of the proviso to Section 4(2) introduced by the Indian Income Tax Amendment Act, 1933.
5. Comparison with the decision in Commissioners of Taxation v. Kirk [1900] L.R. 1900 A.C. 588 regarding the source of income for tax liability.

Analysis:
The judgment by the Calcutta High Court, delivered by Justice Panckridge, addresses the case of a company deriving income from the sale of tea grown in an Indian State. The assessees claimed that a portion of their income should be exempt from tax under Section 4(3)(viii) of the Indian Income Tax Act, citing the principle established in Killing Valley Tea Company Ltd. v. Secretary of State for India [1921] I.L.R. 48 Cal. 161. However, it was noted that the exemption under Section 4(3)(viii) does not apply as tea grown in an Indian State does not qualify as "agricultural income" as defined in the Act. The judgment delves into the distinction between income arising in British India and income received outside British India but brought into the country.

Furthermore, the judgment analyzes the proviso to Section 4(2) introduced by the Indian Income Tax Amendment Act, 1933, which exempts income from agriculture arising in a State in India where payments are made to the State. The Commissioner of Income Tax contended that the income accrued or was received in British India, leading to tax liability. The Court agreed with the Commissioner, emphasizing that income, profits, or gains only accrued upon the sale of manufactured tea in Calcutta, making it the place where income arose and accrued.

The judgment also draws a parallel with the decision in Commissioners of Taxation v. Kirk [1900] L.R. 1900 A.C. 588, highlighting the importance of the source of income for tax liability. It distinguishes between where income arises or accrues and the location of the source from which it arises, emphasizing that the place of sale determines where income, profits, and gains accrue. Justice Costello concurred with the decision, solidifying the ruling of the High Court in affirming the tax liability of the company based on the sale of tea in Calcutta.