Full Judgment Text
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PETITIONER:
SUTLEJ COTTON MILLS LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, WEST BENGAL III,CALCUTTA
DATE OF JUDGMENT23/10/1990
BENCH:
AGRAWAL, S.C. (J)
BENCH:
AGRAWAL, S.C. (J)
THOMMEN, T.K. (J)
CITATION:
1992 SCC Supl. (1) 85 JT 1990 (4) 387
1990 SCALE (2)931
ACT:
Income Tax Act, 1922: Sections 14(2)(c) and 42(3) Asses-
see--Resident in British India-Remittances from native
States--Whether liable to be assessed--In addition to as-
sessment of profits from native States as deemed income from
British India-Principle of attribution-Applicability of.
HEADNOTE:
The appellant, a company resident in British India, had
a cotton mill. The cloth manufactured in the mill was sold
in British India as well as native States. For the assess-
ment years 194546, 194647 and 1947 48, the company was
assessed under Section 14(2)(c) of the Income Tax Act, 1922,
in respect of certain sums remitted to British India from
native States, in addition to the assessment under Section
42(3), deeming 1/3rd of the profit from the sales effected
in native States, as having accrued from the manufacturing
part of business in British India.
The assessee’s contention that 1/3rd of income having
been assessed under Section 42(3), as income deemed to have
accrued in British India, no further assessment should be
made under Section 14(2)(c) was rejected by the Income Tax
Officer, the Appellate Assistant Commissioner and the Income
Tax Appellate Tribunal. The Tribunal also rejected the
assessee’s additional contention that if the remittances
made to British India in any year exceeded the amount taxed
under Section 42(3), then it was only so much of the excess
which could be taxed under Section 14(2)(c). However, it
reduced the additions made by the Income Tax Officer and
affirmed by the appellate authority, by 1/3rd of such remit-
tances. On a reference made under Section 66(1), the High
Court confirmed the Tribunal’s decision.
In the appeal before this Court, on behalf of the appel-
lantassessee R was contended that where there was a mixed
fund, as in the instant case, consisting partly of taxed and
partly of untaxed monies, any remittance made should he
deemed to have been paid out of that
294
part of the money which had suffered tax and that it was the
right of the tax payer to attribute the payment to the taxed
money so as to obtain the benefit allowed by the law.
Dismissing the appeals, this Court,
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HELD: 1.1 If there were two funds at the disposal of the
assessee---one upon which tax had been already levied and
another which was liable to be brought to tax---a presump-
tion, in the absence of evidence to the contrary might arise
that the remittance made by the assessee in the course of
its business was made out of the fund that was already taxed
and not out of the fund that remained to be taxed. [297F]
Meyyappa Chettiar v. The Commissioner of Income-Tax,
[1933] 1 ITR 37, 45, referred to.
1.2 The tax payer is given the right of attribution in
the way most favourable to himself. In the absence of evi-
dence to the contrary, it is presumed that payments are made
out of income. This abstract principle of attribution is
applicable in certain circumstances. Whether it is applica-
ble in a particular case depends upon the facts of that case
and the provisions of the statute. It can be adopted only to
the extent that it is consistent with the law and facts.
[298E-F]
Paton (As Penton’s Trustee) v. Commissioners of Inland
Revenue, 21 Tax Cases 626 and The Cape Brandy Syndicate v.
The Commissioners of Inland Revenue, 12 Tax Cases 359, 366,
referred to.
In the instant case, on the facts found the assessee did
not have two funds, but only one fund composed of taxed and
non-taxed amounts. As one third of this amount had already
been taxed under section 42(3) of the Act, 1/3rd of the
remittances to British India in a particular year was held
to be exempted from levy. The Tribunal having excluded 1/3rd
of the remittances to British India from taxation during a
particular year, the High Court was justified in refusing to
grant any further relief to the assessee. [297G; 299B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1467-69
of 1976.
295
Appeals by Certificate from the Judgment and Order dated
7.5. 1965 of the Calcutta High Court in Income Tax Reference
No, 28 of 1954.
B. Sen, N.B. Singh, Sanjay J. Khaitan, Darshan Singh,
B.N. Dhar and Ms. Suman Khaitan for the Appellant.
S.C. Manchanda, S. Rajappa and Ms..A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
THOMMEN, J. These appeals by the assessee arise from the
judgment dated 7.5.1965 of the Calcutta High Court. The
question relates to the assessment for the years 1945-46,
1946-47 and 1947-48 under the Indian Income Tax Act, 1922
(hereinafter referred to as "the Act"). The assessee was a
company resident in British India during the relevant years.
It had a cotton mill in British India. The cloth manufac-
tured by the mill was sold in British India as well as in
the native States. In the assessment for 1944-45, it had
been held that, for the sales effected in the native States,
1/3rd of the profit was, in terms of section 42(3) of the
Act, deemed to have accrued to the assessee in British
India. This profit was considered as the profit attributed
to the manufacturing part of the business carried out in
British India, although the sales were effected in the
native States. On the same basis, assessment in terms of
section 42(3) was made in respect of the assessment years
1945-46, 1946-47 and 1947-48. In addition to the deemed
income in British India, the assessee was assessed under
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section 14(2)(c) of the Act in respect of certain sums
remitted to British India from the native States.
The assessee’s contention that 1/3rd of the income
having been assessed under section 42(3) of the Act as
income deemed to have accrued in British India, no further
assessment should be made under section 14(2)(c) of the Act
with respect to profits brought into British India, was
rejected by the Income Tax Officer as well as the Appellate
Assistant Commissioner. On further appeal, the Income Tax
Appellate Tribunal also held that there was no substance in
that contention. The Tribunal stated--
" ..... the assessment of profits brought into British
India from a Native State under Section 14(2)(c) is on a
distinct and separate footing from the assessment of Native
States
296
profits which are deemed to have accrued in British India
under Section 42 ...... "
The assessee raised an additional contention for the
first time before the Tribunal. That contention was that the
remittances made to British India had to be taken as having
first come out of profits "deemed to have accrued in British
India" and brought to tax under section 42(3), and only the
excess remittances, if any, could be taken as having come
out of the remainder profits exempted from tax under section
42. The assessee pointed out that I/3rd of the profits
having been already charged under section 42(3), by reason
of the legal fiction contained in that sub-section, any
amount brought into British India upto the extent of 1/3rd
should be presumed to be that which was attributable to that
1/3rd which had already suffered tax, and the balance remit-
tance, if any, alone should be taxed under section 14(2)(c)
of the Act. In other words, according to the assessee, if
the remittances made to British India in any accounting year
exceeded the amount taxed under section 42(3) of the Act,
then it was only so much of that excess which could be taxed
under section 14(2) of the Act. The Tribunal did not accept
this contention. However, it stated:
" ..... it appears to us that the common sense point of
view would be that the remittances to British India include
both the assessed as well as the exempt profits in the same
proportion in which those existed in the Native State .....
It therefore appears to us that the correct view would be to
apportion the remittances over the assessed and the exempt
parts in the same proportion as these existed in the total
profits made in the Native State. As such proportion was one
third and two thirds, the remittances would be similarly
split up. Thus 1/3rd of the remittances has come out of
profits assessed under Section 42. On this basis, these
additions made by the Income-Tax Officer and confirmed by
the Appellate Assistant Commissioner will have to be reduced
by one third of such remittances."
On a reference under section 66(1) of the Act, the High
Court by its judgment dated 22.7.1957, found that the facts
stated were insufficient and that there was an error appar-
ent on the face of the question as framed. The High Court
accordingly called for a supplementary statement of the
case.
In its supplementary statement, the Tribunal referred
the following question:
297
"Whether on the facts and in the circumstances of the case,
the sums of Rs.50,195 for 1945-46, Rs.76,155 for 1946-47 and
Rs.6,00,909 for 1947-48 assessments have been rightly in-
cluded in the assessable income of the applicant under
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Section 14(2)(c) of the Indian Income-tax Act as profits
brought into British India from Indian States?"
The High Court by its judgment dated 7.5,1965 rejected
the assessee’s contention that, where there was a mixed fund
composed of taxed and non-taxed items and a neutral payment
was made i.e. without specifying the exact source of the
payment, the taxing authorities, in the absence of any
evidence to the contrary, had to proceed on the basis that
the payment was made out of that part of the mixed fund
which had already borne tax. The High Court, however, ob-
served:
" .... in this case the assessee did not have two funds
but only one fund composed of taxed and non-taxed amounts
and as one third of the entire amount of profits made by the
assessee in the Indian States had been subjected to tax the
income-tax authorities took a reasonable view in excluding
one third of the remitence to British India from taxation in
each year. There were sufficient profits in each year out of
which remittance could be made even after deduction of the
portion which had been taxed ..... ".
In the result, the question referred was answered by the
High Court against the assessee. Hence the present appeals.
If there were two funds at the disposal of the
assessee--one upon which tax had been already levied and
another which was liable to be brought to tax--a presump-
tion, in the absence of evidence to the contrary, might
arise that the remittance made by the assessee in the course
of its business was made out of the fund that was already
taxed and not out of the fund that remained to be taxed. See
Meyyappa Chettiar v. The Commissioner of Income-Tax, [1933]
1 ITR 37, 45. That was apparently not the case here, for, on
the facts found, the assessee did not have two funds, but
only one fund composed of taxed and non-taxed amounts. As
one third of this amount had already been taxed under sec-
tion 42(3) of the Act, 1/3rd of the remittances to British
India in a particular year was held to be exempted from
levy.
Relying on the principle referred to in Paton (As Pen-
ton’s Trustee) v. CommissiOners of Inland Revenue, 21 Tax
Cases 626, Dr.
298
B. Sen, on behalf of the assessee, however, submits that
where there was a mixed fund, as in the present case, con-
sisting partly of taxed and partly of untaxed monies, any
remittance made should be deemed to have been paid out of
that part of the money which had suffered tax. It is a right
of the tax-payer to attribute the payment to the taxed
money, so as to obtain the benefit allowed by the law.
Lord Wright, M.R. in Paton (As Penton’s Trustee) v.
Commissioners of Inland Revenue, 21 Fax Cases 626 at 639),
referring to the right of the tax-payer to attribute payment
to taxed monies, stated:
" ..... in the ordinary course, a person paying interest
does not generally appropriate the payment to income or to
any particular piece of income or any specific asset: he has
the general body of available funds, say his banking ac-
count, if he has only one, and he pays by drawings on that
account. which may include income, borrowed money, capital
and so forth. This is what is meant by payment out of a
mixed fund, or payments made out of the general till, or
payments made neutrally. The Revenue authorities have no
right in such cases to appropriate those payments to non-
taxable rather than taxable moneys. Hence the taxpayer is
given the right of attribution in the way most favourable to
himself It is presumed, in the absence of evidence to the
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contrary, that payments are made out of income".
This principle of attribution is no doubt applicable in
certain circumstances, such as those narrated by Lord Wright
in Paton (supra), although in that case, on the facts found,
the principle was not applied.
Whether that principle is applicable in a particular
case depends upon the facts of that case and the provisions
of the statute. The abstract principle of attribution, which
is applicable in certain circumstances, can be adopted only
to the extent that it is consistent with the law and facts.
It is well to recall:
" ..... there is no room for any intendment; there is no
equity about a tax: there is no presumption as to a tax; you
read nothing in; you imply nothing, but you look fairly at
what is said and at what is said clearly and that is the
tax".
[Per Rowlatt, J. The Cape Brandy Syndicate v. The Com-
299
missioners of Inland Revenue, 12 Tax Cases 359,366].
The view taken by the Tribunal, with reference to the facts
found and the provisions of the statute, was, in our opin-
ion, reasonable. It was so found by the High Court.
In the circumstances, we hold that the Tribunal having
excluded 1/3rd of the remittances to British India from
taxation during a particular year, the High Court was justi-
fied in refusing to grant any further relief to the asses-
see.
Accordingly, we see no merit in these appeals and they
are dismissed with costs throughout.
N.P.V. Appeals dis-
missed.
300