TMI Blog1943 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... s affairs is situated is in accordance with English law. But it is suggested that paragraph (b) is ultra vires in that it involves the taxation of a non-resident in respect of income derived outside British India. The facts found by the Tribunal are that the assessee, Wallace Bros. Co., Ltd., is a company incorporated in the United Kingdom, that the control and management of its affairs is situated wholly in that country, and that the company has no director in India, but is a sleeping partner in the firm of Messrs. Wallace Co., which carries on, and has a place of, business in Bombay. What exactly is meant by the expression sleeping partner, I am not sure. Seeing that the English company is entitled under the articles of partnership to a 14/32 share in the profits of the Bombay firm and that it can dismiss any other partner on six month's notice, I apprehend that, although it may leave the management of the affairs of the firm in India to the partners resident in India, its views on matters of general policy are likely to meet with considerable respect from those partners. However, I do not think it matters what the exact relationship of the partners inter se may be; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and eighty-two days or more. Then there are other circumstances enumerated which constitute residence of an individual. Then comes sub-section (c) which is the material one, and which I have already read, and so far as relevant for the present purpose it provides that a company is resident in British India if any if its income arising in British India in that year exceeds its income arising without British India in that year. That sub-section plainly justifies the present assessment, if it is valid, but the contention of the assessee is that it is ultra vires. Now, the Indian Legislature is not, as we know, a Sovereign Legislature. Its powers are conferred by the Government of India Act, 1935, but within the ambit of the very wide legislative powers conferred by that Act the Indian Legislature is a Sovereign Legislature. The question whether or not this sub-section is ultra vires must necessarily turn on the construction of the Government of India Act, the contention of the assessee being that it is incompetent for the Government of India to provide that the income of a non-resident which accrued outside British India shall be subjected to Indian Income-tax, because that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be subjected to taxation. I do not think in this case any question of legislative practice arises, because we are not called upon to consider the construction of any particular words of the Government of India Act, so that we cannot be asked to construe them in the light of former legislative practice. Then it was argued that the only moral justification for imposing income-tax, if one may use such an expression in relation to such a subject, was that a man is taxed in return for the protection afforded him by the laws of the taxing country. But that argument does not help here, because it is the basis of sub-section (c) of Section 4-A (which I will refer to as the impugned sub-section that the bulk of the assessee's income is derived from British India, and, therefore, is earned under the protection of British Indian laws. Then it was argued by Sir Jamshedji that there was something unfair and improper in taxing the foreign income of a non-resident. In opening he did not go so far as to say that such a provision would be contrary to natural justice, but he could not resist saying so in reply. But, with all respect, there does not seem to me anything inherently unfair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes Taxes on income other than agricultural income. Taxes on agricultural income are included in the Provincial list. So that two things seem to me clear from those sections and the Seventh Schedule, first, that the mere fact that an Act of the Central Legislature has some extra-territorial operation is not enough to invalidate it, and, secondly, that the power to impose income-tax is vested in the Indian Legislature. Sir Jamshedji Kanga contends that the impugned sub-section is of purely extra-territorial effect. That is clearly going too far, since the basis of the sub-section is that the bulk of income has been earned in British India. On the other hand, Mr. Setalvad, for the Commissioner of Income-tax, maintains that, properly considered, the sub-section has no extra-territorial effect, and he has referred us to certain authorities of the Federal Court of Australia in which the meaning of the expression extra-territorial legislation has been considered. I do not think it necessary to go into that question in any detail, because there is no expression in the Government of India Act which we are called upon to interpret which mentions extra-territorial legislation. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any extra-territorial effect is invalid, and short of such a prohibition, I cannot see any principle on which the impugned sub-section can be held to be ultra vires. Whether it is impolitic as being calculated to drive capital out of the country, it is not for us to consider. As the Tribunal has pointed out, in the ultimate analysis the effect of the sub-section is to increase the amount of the assessment on the taxpayer. In clothing a company with an artificial residence for the purpose of income-tax, the Income-tax Act is merely employing machinery for levying additional tax in relation to income arising within British India. The same result could be achieved by providing that in the case of an assessee who is shown to possess income arising outside British India the amount of his assessment should be increased proportionately to the amount of his income accruing outside British India. Referring to some of the cases cited, there is, I think, no doubt from the English cases in the House of Lords, particularly Egyptian Delta Land and Investment Co. v. Todd [1929] A.C. 1 and Swedish Central Railway Co. v. Thompson [1925] A.C. 495 , that, in the case of a company, residenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to the impugned sub-section, but, as the Tribunal points out, there is no question of giving retrospective effect. No doubt, the Amended Act came into operation after the close of the previous year, but under that Act income of the previous year has to be ascertained in accordance with the provisions of the Amended Act in order to determine the assessment for the current year. Sir Jamshedji Kanga raised a further point that the sub-section did not apply, because there was no finding that the assessee was to be treated as resident in British India in the year of assessment, the finding only relating to the previous year. But, in my opinion, it is only the previous year which is relevant. So that the third question must be answered in the affirmative. The fourth question is: Whether on the facts found by the Tribunal the Additional Income-tax Officer, Companies Circle, Bombay, had jurisdiction under Section 64(1) or Section 64(2) to make the assessment? Under Section 64(1) the assessment has to be made by the Incometax-Officer of the area in which the assessee's place of business is situate. Here the assessee has been found to be a partner in the firm of Wallace ..... X X X X Extracts X X X X X X X X Extracts X X X X
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