TMI Blog1931 (3) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... o be assessed to income tax on the income derived by it from the working of the Pondicherry Railway under Section 1 of the Indian Income tax Act as income accruing or arising or received in British India? (c) Whether the Pondicherry Railway Company Limited Games on business in British India within the meaning of the Income-tax Act ? and (d) Whether in any event the income of the said company that is liable to assessment to income tax is only that portion which is payable to it under the concession between it and the French Colonial Government? 2. The Commissioner, as required by the Act, stated his opinion on the questions referred which was to the effect that questions (6) and (c) fell to be answered in the affirmative and question (d) in the negative. 3. In the High Court the learned Chief Justice (Sir Murray Scotts Trotter) was of opinion that questions (6) and (c) should be answered in the negative, but the majority of the Court (Odgers and Beasley JJ.) were of opinion that these questions should both be answered in the affirmative. This accordingly became the decision of the Court. As regards question (d) the Court was unanimously of opinion in the negative. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of administration for which the Company has made itself liable. 6. The company duly constructed the projected line of railway, which was entirely situated in French territory, and effected the junction at the frontier with the system of the South Indian Railway. As empowered in the convention with the French Minister the company entered into an agreement dated March 25,1879, with the South Indian Railway Company Limited, where by the latter undertook to work, manage and maintain the Pondicherry Railway. The agreement in force between the two railway companies at the time of the assessments in question was dated December 30, 1890. Such agreements between an owning company and a working company are familiar in railway practice and may take various forms. Examples which have come before the Courts are discussed in their legal bearings in Sevenoaks Maid-stone and Tunbridge Railway Go v. London, Chatham and Dover Railway Co. (1879) 11 Ch.D. 625, South Behar Ry. Go, v. Inland Revenue Commissioners [1925] A.C. 476, Inland Revenue v. Edinburgh and Bhatgate Railway Company [1926] S.C. 883, and Inland Revenue v. Dublin and Kingstown Railway Co. (1926) 5 Ace. T.C. 721. The working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of the share of profits due to the French Colonial Government. He receives an honorarium of 21 a year from the Pondicherry Company ' for services rendered.' 14. The Chief Engineer and the General Traffic Manager of the South Indian Company are also ex officio officers of the Pondicherry Company and receive an honorarium of 10 10 s. each. The Revenue accounts of the Pondioherry Company are prepared by the Chief Auditor of the South Indian Company acting as Chief Auditor of the Pondioherry Company. 15, The Pondicherry Company has an office at Trichinopoly with a signboard. 8. Exhibit C is a letter dated April 5, 1923, addressed from London by the Secretary of the Pondicherry Company to Mr. Scott (Mr. Rothera's predecessor), Agent, Pondicherry Railway Co., Ltd., Trichinopoly, enclosing a statement of the expenses of administration of the company in England for the year. The letter proceeds: The figures now furnished will enable you to prepare the Revenue account for the year ending March 31, 1923, showing the amount of not profits divisible between the French Colonial Government and the Company. When this has been done you will be good enough to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Business in respect of the profits or gains of any business carried on by him , and prescribes that such profits or gains shall be computed after making allowance for inter alia (ix) any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains. Business is defined in , Section 2(4) as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 13. In the Court below the question whether the assessed income of the Pondicherry Company accrued or arose in British India within the meaning of the Act was much discussed, and the opinion of the majority of the Judges as embodied in the order of the Court of March 26, 1929, was that it did so accrue. Their Lordships do not find it necessary to pronounce upon this aspect of the case and have come to no conclusion with regard to it, for they are satisfied that the income in question was received in British India within the meaning of the statute, which is sufficient for the determination of the company's liability. .The argument presented by Mr. Micklethwait for the appellents was to the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and the French Government in terms of the Convention, and this is not a mere matter of dividing it by two, for, as appears from Exhibit D, the share remitted to London is not the same as the share remitted to the French Government. It is one half of the net profits as ascertained in terms of the Convention that the French Government receives and the computation of this half involves calculation on the part of Mr. Rothera as the agent of the Pondicherry Company. He is instructed from London to pay over to the French authorities their moiety. How he can obey this instruction and pay over what, on the appellants' submission, he has not received requires for its appreciation a metaphysical subtlety remote from the prosaic realm of income-tax law. How, it may also be asked, can he purchase a draft on London unless he has the wherewithal to pay for it ? The attempt to present Mr. Rothera as an animated post office fails when it is realised that his functions far transcend the mere mechanical act of transmitting a sum to its recipient. He is the paid agent at Trichinopoly of the Pondicherry Company, carrying on their agency in an office bearing their name and he is entrusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be left open, in view of possible ulterior consequences, and their Lordships make no pronouncement on the point. 17. Question (d) relates to the quantum of the assessment. The statute permits the assessee in computing the profits or gains of any business carried on by him to deduct any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains. The Pondicherry Company is taken bound in the convention with the French Minister to make over to the Colonial Government one half of the net profits of the undertaking arrived at in the manner prescribed in the Convention. It is claimed for the company that when it makes over to the Colonial Government their half of the net profits it is making an expenditure incurred solely for the purpose of earning its own profits. The Court below has unanimously negative this contention and in their Lordships' opinion has rightly done so. A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits. It assumes that profits have first come into existence. But profits on their coming into existence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of opinion that the profits and gains of the Pondicherry Railway Company accrued in British India and hence it is liable to be taxed and that the said Company carries on business in British India within the meaning of the Indian Income-tax Act doth answer Questions (b); and (c) in the affirmative and substituting therefore the following: This Court doth declare in answer to Questions (6) and (c) that the Pondicherry Railway Company Limited is liable to be assessed to income tax for the years 1925-26 and 1926-27 under Section 4(1) of the Indian Income-tax Act on the income derived by it from the payments made to it by the South Indian Railway Company Limited in respect of the working of the Pondicherry Railway as being income received in British India by the Pondicherry Railway Company from the carrying on of its business. 19. And that the order of the High Court of May 1,1929, be varied by deleting there from the following words: And this Court being of opinion that the yearly payment made to the French Colonial Government is a distribution of profits and not an allowance deductible from those profits doth answer in the negative question (d), viz,' Whether in any eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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