TMI Blog1945 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ia in Council. The primary purpose of the Company, as stated in CI. (1) of Art. III of the Memorandum of Association, was to survey construct, complete and make ready for public traffic and to maintain, develope, work, manage and carry on a line of railway or tramway of an approximate length of 75 miles starting from Larkana in the Bind Province, and proceeding thence to Jacobabad via Kambar and Shahdadkote, ...The authorised capital of the company was ₹ 30 lakhs, of which ₹ 27 lakhs were actually issued, this being the amount of capital which the company had undertaken to provide in the first instance for the construction of the Railway. The line was completed and was opened for traffic in February, 1922. 2. The exact terms of the agreement with the Secretary of State were under discussion for some years and the agreement was actually signed on the 5th of February 1924.... In accordance with the agreement the line was handed over on completion to be maintained by the Secretary of State through the agency of the North Western Railway. Under the provisions of schedule II the profits earned on the working of the line were to be divided between the Company and the Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o income-tax under the Income-tax Act of 1918 for the years 191819, 1919-20, 1920-21 and 1921-22, but these assessments related only to the income from interest. There is a note below the assessment order for 1919-20 which states that the company is not liable to E. P. D. Act (Excess Profits Duty) since the above income is from investments and not from business i. e. the Railway has not yet commenced working. 6. The relevant entries in the return submitted by the Company for the income-tax year 1921-22 were as follows : Profits as per accounts submitted.... nil. Amount of interest realised on Government and other securities and accounted for in the accounts? Ed. 92918-15-0 . 7. The income-tax assessment was made on the basis of the return, allowance being given for interest on tax-free loans which amounted to ₹ 49,607 and for expenses amounting to ₹ 13015. This was the last assessment made under the Income-tax Act of 1918 since the present Act came into force on the 1st April 1922. 8. As has already been stated the line was taken over by the Secretary of State with effect from the 3rd May 1939. In connection with its assessment for 1939-40 the Company clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depend on whether the Secretary of State can be held to have succeeded to the business carried on by the Company or whether the business should be regarded as having been discontinued. It is not necessary to reach a decision on this question since the procedure prescribed by the Act is the same in each case, but it may be mentioned that in ('32) 19 A.I.R. 1932 Bind 189 : 27 S.L.R.47 : 138 I.C. 673 : 6 I. T. C. 271, Sind Light By. Co. Ltd. v. Commr. of Income-tax, Bombay it was held that the Government had succeeded to the business of the acquired railway within the meaning of S. 26 (2) of the Act as it stood before the amendments made in 1939. 9. The Income-tax Officer, B. Division, Karachi, who dealt, with the assessment came to the conclusion that the Company was not entitled to relief under either of these sub-sections since no tax had been charged on the business of the Company under the provisions of the Income-tax Act of 1918. He accordingly assessed the company to income-tax and super-tax on the assessable income of the accounting period ending on the 81st March 1939, which amounted to ₹ 1,47,934... 10. The Company, then appealed to the Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. In (1930) 1930 A. C. 432 : 99 L. J. K. B 403 : 143 L. T. 77 : 15 Tax Cas. 268, Pry v. Salisbury House Estate Ltd Lord Atkin said : The option of the Revenue authorities to assess under whichever schedule the; prefer in my opinion does not exist and is inconsistent with the provisions of the Income-tax Act throughout their history.... My Lords, nothing could be clearer to indicate that the Schedules are mutually exclusive. Similarly I am of opinion that income derived by a trading company from investments of its funds, whether temporary or permanent, in Government securities must be taxed under Schedule 'C, and cannot for purposes of assessment under Schedule 'D' be brought into account. 14. The only option that exists is to tax income from investments either under case I or case IV of schedule 'd' (vide (1906) (1906) 5 Tax Cas. 221, Revell v. Edinburgh Life Assurance Co. It is important to note that the option available is only an option to choose between cases of the same schedule. Section 6, Income-tax Act reads as follows: Save as otherwise provided by this Act the following heads of income, profits and gains shall be chargeable to income-tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head 'business.' 17. Sub-ss. (3) and (4) of S. 25 refer to 'any business,, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918.' It is only the income appropriately falling under 'business, profession or vocation' and assessable under s. 10 which is eligible for the benefit of these sub-sections. In the present case it is admitted that the assessments made under the Act of 1918 were made only on the income from interest and not on income derived from the working of the railway. The Company argues that the investing of its surplus funds formed part of its business and points out that under cls. (21) and (25) of its Memorandum of Association one of the objects with which it was established was to lend, invest and deal with moneys of the Company not immediately required. It does not necessarily follow however that all the activities which a company is authorised to undertake can be treated as part of its business for income-tax purposes. Most companies whatever their principal activity may be, are authorised to acquire property and to let it out on rent, but the rental income received from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e working of the railway line run on a profit sharing basis. The question whether a business is separate is a finding of fact. Although, speaking generally it may be said that a company can have only one business as set out in the memorandum and Articles, the revenue decisions particularly in Excess Profits Duty cases and cases of discontinuance and succession, proceed on the basis that for the purposes of the Taxing Acts a Company may have more than one separable business. Even for the purpose of setting oil a business loss carried forward to a succeeding year S. 24 (2) allows a 'set-off against the profits and gains, if any, of the assesses from the same business.' In my respectful opinion therefore if any relief is at, all due on the ground that the income assessed under the Act of 1918 was from business, the Company would be entitled to relief only to a limited extent, i. e. it might claim to substitute only the income from investments for the period from 1st April to 2nd May 1939 for the income from that business of the 'previous year.' I would submit that the second question should be answered accordingly. 21. It was assumed by both parties before us durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re part of the business for which the company was formed, and that ultimately every part of the income of the Company, no matter from what source it was derived, would affect the Company's profits, if not in the years when the income was received, at least in later years. Of this of course there can be no doubt. When it was further argued that the tax paid by the Company on its income from its investments, under the head interest realized on Government and other securities, was therefore a tax charged on the business of the Company, because the Company was, at the time, engaged in doing what was its business, it appears to us that the argument is clearly vitiated by the fact that it omits to take into account the words : charged under the provisions of the Income-tax Act 1918. The question must of course be considered in the light of the scheme under which tax is charged under the Act. It does not help the Company to point out that it was not, for instance, a sporting or a charitable concern, but a company formed for the purpose of running a business for profit, when the question is whether its business had or had not in fact been charged as a business under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 'business' in S. 6 Income-tax, Act, 1922, a case of this character is to be put under the word 'business'. It comes more directly and specifically under the word 'property.' In my judgment, the mere fact that the house-owner is a company does not change incidence of the tax in the way contended for. 25. In ('35) 22 A I R 1935 Cal, 344 : 62 Cal, 804 : 156 I C 394, In re Sadhucharan Roy, the question was whether the letting of a jute press was or was not the carrying on of a business, and it was stated (by Lord Williams and Jack JJ.): That the lessor in that case was a registered company seems to me to be irrelevant. 26. The case which is most in point on the question before us is ('35) 25 A I R 1935 Mad 953 : 59 Mad 216 : 158 I C 895 : 69 M. L. J. 611 (S B), Commr. of Income-tax, Madras v. B. J. Fletcher. One of the questions in this case was whether the assessee Fletcher, who had been taxed under the head Salaries under the Act of 1918, and who claimed to have pursued a vocation during that period, could on a discontinuance claim the benefit of sub-cl. (3) of a. 25. Beasely, C. J. stated in this connection: I am clearly of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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