TMI Blog1965 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... sh India. The Supreme Court, on appeal by the Commissioner of Income-tax, Madras, considered that the question in that form was not properly framed and, though this court as a matter of fact had held that the income arose in the Mysore State, inasmuch as that was not the question which had been referred to it, it had no power to decide a question not referred to it. By consent of the parties before it, the Supreme Court set aside the judgment of this court and reformulated the following questions and remitted them to this court for its decision : " (1) Whether the whole or any part of the assessee's income of Rs. 1,24,004 referred to in paragraph 7 of the statement of the case accrued or arose to the assessee in the State of Mysore (as it was before 1950) and exempt from tax for the assessment year 1946-47 under section 14(2)(c) of the Indian Income-tax Act? (2) If only a part of such income accrued or arose to the assessee in the State of Mysore, what is the quantum therefor? These questions have accordingly come before us. In our opinion, for the reasons we shall presently state, the first of them should be answered in favour of the assessee, and on that view the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verify the amount of the bills finally passed from time to time as payable to Krishna Ayyar in respect of the work specified under the agreements. The assessee was to have no right to question or dispute the amount of the bills as finally passed by the authorities or agreed to by Krishna Ayyar and the amounts payable to the assessee under the agreements were to be computed on the amounts of the bills so settled and agreed to by Krishna Ayyar. The final bills under these two agreements were submitted and accepted by the Mysore authorities in the case of Kolar on December 28,1945, and the other case, on December 29, 1945. The accounts of Krishna Ayyar in relation to the commission payable to the assessee were looked into and settled at Madras on June 15, 1946, and the same adjusted in his books. In the statement of the case it has been stated that, till such adjustment, the commission was not actually paid as such to the assessee. Though the terms of the agreement did not specify where the advances were to be made, actually the assessee and Krishna Ayyar opened a joint current account in the Bangalore City branch of the Bank of Mysore Ltd. with Rs. 20,000 sent by a bank draft fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s books.But the Appellate Assistant Commissioner took a contrary view and directed the exclusion from the taxable income the total sum of Rs. 1,24,004, in the view that the right to receive commission depended on the execution of the work by Krishna Ayyar in Mysore State and the acceptance of the works and the passing of the final bills by the Central Public Works Department, Bangalore, and all the operations which yielded income were in Mysore State. He reasoned further that the assessee's source of his commission was the execution of the works at Kolar and Yelahanka and that, unless they were executed and the contractor received payments for them, or some profit was made therefrom, the assessee would not get commission at all. He, therefore, held that the financing commission accrued or arose to the assessee in Mysore State where he derived it. The Tribunal, in the appeal of the Commissioner of Income-tax, did not accept that reason but agreed with the Income-tax Officer. The Tribunal said that the essential business of the assessee for the purpose of the appeal was financing and that the sole element of such business being fluid resources to provide capital and banker's intuiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is why the claim to exemption was, as has already been seen, actually made by the assessee under section 14(2)(c) of the Act as it then stood . . . . The assessee would under this provision be entitled to exemption if it is found that the income arose in the State of Mysore. The High Court no doubt held that the income so arose. But that was not the question which had been referred to it and admittedly it had no power to decide a question not referred to it. " It may be seen that the assessment order proceeded on the basis that the entire income in question accrued to the assessee in British India and that, as such, was chargeable to tax under section 4(1)(b)(i) of the Income-tax Act. If the situs of the income is not in British India but without the taxable territories, even then the income would be chargeable to tax under section 4(1)(b)(ii), as the assessee is a resident of Madras, unless the income falls within the purview of section 14(2)(c) of the Act. Section 3 is the charging section and says that tax shall be charged for any year at the rates specified for that year by any Central Act in respect of the total income. Section 4 provides, subject to the other provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culty as to situs of accrual of interest or com-mission may arise. But where the links in the chain of a lending transaction in which money is paid and received with interest on an understanding or under agreement are in different places, the question may then be whether the situs of accrual of interest or commission is at one or other places where some or more of the links in the chain existed or are to be found. The answer would depend upon which of these links constitute the essence of the transaction from the point of view of accrual of interest or commission. On that view it appears to us that, although the place of contract is an important factor in the context, in a money lending transaction the decisive factor would be the place where the money is actually lent, irrespective of where it came from. This is because, without actual advance, no commission or interest can accrue or arise. It is equally true that, without an agreement to lend, there may not be a lending transaction, but the agreement may stop short of performance. We do not think that the actual place of user of the money lent may have a bearing in deciding the situs. A money-lender, who is a resident of a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber Trust Ltd. (1), Commissioner of Income-taxv. Modern Theatres Ltd. (2), E. D. Sassoon Co. Ltd. v. Commissioner of Income-tax (3) and Commissioner of Income-tax v. Ashokbhai Chimanbhai (4).Before adverting to some of these cases, we would first notice Commissioner of Income-tax v. Chunilal B. Mehta (5). That was a case of an assessee resident in British India, making profits derived from contracts made for purchase and sale of commodities in various foreign markets Liverpool, London, New York and elsewhere outside British India. The assessee disputed his liability to tax on those profits on the ground that they were not profits accruing or arising in British India. The Privy Council, agreeing with the High Court, accepted that view of the situs of accrual of the profits. The main feature noticeable in this case is that both the execution of contracts and the performance thereof were outside British India. The Privy Council negatived the contention for the revenue that the mere fact that the profits made in that case depended on the exercise in British India of knowledge, skill and judgment on the part of the assesse and upon instructions emanating from British India justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of exploitation in the Indian States. The assessee did not part with the pictures until the amount was paid to it at the time of the delivery of the films in the Indian States. It was held by this court that the profits of the business accrued wholly in the Indian States and were exempt under the third proviso to section 5 of the Excess Profits Tax Act. This was upon the footing that nothing accrued to the assessee until the film was put in possession of the exhibitor with a view to exploit the same and this was done wholly in the Indian States. This case also illustrates that the place of execution of an agreement may not be decisive, but the activities connected with the performance of the terms of the agreement may point to where the profits accrued or arose. It maybe that the principles governing the situs of accrual of profits arising out of sale of goods may not be applicable to transactions of money lending, which are of a different nature, but they do assist the assessee in his contention that a place of execution of a contract need not necessarily be decisive of the place of accrual of profits. On behalf of the revenue Mr. Balasubrahmanyan contended, (i) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The agree-ments were specific that the amount payable to the assessee should be calculated only on the bills as finally passed and accepted for payment bythe concerned authorities. While we accept the contention for there venue that the commission for the assessee accrued when moneys were advanced, we are also of the view that the accrual was made conditional upon the submission of bills and passing of the same. Without the bills being submitted and accepted by the concerned authorities, there can be no question of any commission accruing to the assessee on the terms of the agreements. If, for instance, the concerned authorities rejected any of the bills, to that extent, the accrual of commission would be affected. That shows that the importance of the bills lay not merely in the computation ofthe quantum of commission. Having regard to the nature of the money-lending transactions, the commission payable for the money had and received and the conditions for its accrual, we are unable to accept the contention for the revenue that the place of execution of the two agree mentsor of settlement of the commission should be decisive of the place of accrual of the commission payable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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