TMI Blog1949 (11) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... d as 10(2)(xv) by Section 3 of the Indian Income-tax Amendment Act, 1946]. The sum of ₹ 453 referred to in the first question represents an amount of overdrawings by one of the employees of the assessee, one Veerabahu Pillai. He was employed at the headquarters and while he was in service he took advances from time to time and left service. On 7th July, 1938, a promissory note was taken from him for the amount due together with interest and before the expiry of the period of limitation an endorsement of payment of eight annas was made on the promissory note. During the accounting period ending 13th April, 1943, this sum was written off as a bad debt. The deduction claimed was not allowed by the Income-tax authorities and the Appellate Tribunal. It was claimed that the assessee was entitled to deduct this amount under Section 10(2)(xi) of the Act. Under that clause bad and doubtful debts are allowable deductions provided in the case of banking or money-lending business the amount represents a loan made in the ordinary course of such business. At its inception the amount was merely an overdrawing and was not a loan made in the ordinary course of money-lending business. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 46 of the Act. This amounted to a huge sum of ₹ 84,388. The assessee claimed unsuccessfully that this amount should be deducted either under Section 10(2)(iii) or under Section 10(2)(xii) which now corresponds to (xv) of the Income-tax Act. Before us the first contention urged on behalf of the assessee by Mr. Bashyam, the learned Advocate, is that in respect of foreign profits the assessee should not be restricted to the deductions provided under Section 10 of the Act. His argument was that the language of the section applies only to business carried on in British India and not outside it. He however did not dispute that the legislature had jurisdiction to enact laws which have extra-territorial force and did not therefore urge that by reason of any disability or restriction imposed upon the power of the legislature to enact laws, we should read the word business occurring in the section in a restricted sense so as to confine it to British India. Under the charging section (Section 4) a person resident in British India is liable to pay income-tax in respect of income, profits and gains not only received in British India but also which arose or accrued outside Briti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng profits, it is contended that the liability to pay interest under Section 46 of the Ceylon Ordinance must be treated as permissible deduction as the Income-tax authorities, while claiming the benefit of the utilisation of that large amount in the money-lending business, could not be permitted to get rid of the liability to pay interest. No doubt, if in fact, ₹ 10,00,000 was utilised in the money-lending business and it earned profits, it might appear inequitable that the Government should take the benefit of it but dispute the liability in respect of it. We are not, however, concerned whether the refusal to recognise this large sum of interest paid by the assessee to the Government of Ceylon was morally justified or not. The assessee in order to succeed in his claim must bring himself within one or other of the provisions of the Act recognising his claim as an allowable deduction. The liability to pay estate duty is a statutory liability and the money remained in the hands of the assessee without its being applied to the payment of the estate duty. The situation in which the assessee placed himself by reason of the non-payment of the duty in time cannot be described as a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive expenditure for the purpose of the business and therefore clause (xv) also has no application. It has been held by this court in Arunachalam Chettiar v. Commissioner of Income-tax, Madras [1945] 13 I.T.R. 183; [1945] 1 M.L.J. 258, that the cost of defending suit to recover death duty payable to the Government of the Federated Malay States was an expenditure outside the business and was not an expenditure incurred wholly or exclusively for the purpose of the business. This decision supports the argument of Mr. Rama Rao Saheb. The decision in Ramaswamy Iyengar v. Commissioner of Income- tax, Madras [1943] 11 I.T.R. 597; I.L.R. 1944. Mad. 635, does not carry the matter further as in that case the deduction that was claimed was with reference to expenditure incurred in obtaining letters of administration and probate of a will and also an amount of death duty that was paid. The two amounts were disallowed. With reference to the death duty that was paid, it was pointed out that it was a duty imposed by the State for the benefit of the State and whether the business was carried on or not, it had to be paid and it was no concern of the State. It was a payment which the State had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation on the part of the Government to assess the death duty within one year of the date of the death of the deceased. But it does not follow that the interest which is made a statutory charge along with the principal amount of death duty is anything more than a statutory liability imposed on the estate of the deceased person. It is not the contention of Mr. Bashyam that it was not competent to the Indian Legislature to tax the foreign incomes of the subjects of British India. So far as subjects of a State are concerned, there is nothing to prevent the legislature from regulating the dealings of the subjects of the State even to the extent of taxing incomes derived by them from foreign countries. There is no question of extra-territorial operation in the legal sense of that term in such a scheme of taxation. This has been ruled by the Federal Court in Wallace Bros. Co., Ltd., v. Commissioner of Income-tax, Bombay [1945] 13 I.T.R. 39, affirmed by the Judicial Committee on appeal [1948] 16 I.T.R. 240. Mr. Bashyam's contention, however, is that there is nothing either in the express provisions of the Income-tax Act or what may be considered to be their necessary implica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not have been kept and utilised as the capital of the business and the interest income of the money-lending business would have been much less than the sum returned and taxed. He therefore argues that, as a matter of rough and ready justice, the sum of ₹ 84,388 paid to the Ceylon Government on the sum of ten lakhs withheld from payment as death duty must be allowed as deduction in computing profits of the Ceylon money-lending business. Attractive as it may seem, there is no warrant in law for this contention. The sum of ₹ 10,00,000 never left the purse of the assessee. It never reached the Ceylon Government. It continued to remain as part of the assets of the money-lending business of the assessee. By no stretch of imagination could it be said that this sum which the assessee had to but did not pay was borrowed by the assessee from the Ceylon Government and on this borrowing he was paying interest to the Ceylon Government just as a debtor would pay interest to his creditor. By reason of the Ceylon Government's Ordinance a heavy death duty became exigible and by force of the same statute, interest was also payable on the amount of unpaid death duty. This statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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