CHIEF COMMISSIONER OF INCOME-TAX Vs. EASTERN EXTENSION AUSTRALASIAAND CHINA TELEGRAPH COMPANY LIMITED

JUDGEMENT

(1.) This reference raises a question as to the interpretation of a rule made by the Government of Madras under Section 43(2)(e) of the Indian Income-tax Act which enables it to " prescribe the manner in which and the mode by which the taxable income of persons not resident in British India or of persons deemed to be asses-sees in respect thereof, shall be arrived at." Such persons under Section 33 are made liable to be taxed on profits or gains which are deemed to arise or accrue in India. Rule 1 provides that the profits in India for assessment purposes may be calculated on such percentage of the turnover of the business in India as the Collector may consider reasonable Rule 2, with which we are concerned, is as follows. " In cases in which the method of assessment on a percentage of turnover is inapplicable--as for example--the case of an Indian Branch of a Foreign Insurance Company--the profits of the Indian Branch may be assumed for Incometax purpose's to bear the same proportion to the total profits of the company as its receipts bear to the total receipts." The question referred to us is whether or not in arriving at the " total profits " for the purposes of the rule Incometax and Excess profits duty payable in England and Incometax payable at stations outside British India are to be deducted. Mr. Aiyangar for the appellant has referred us to Stevens V/s. Durban Roodeport Gold Mining Company 100 L.T. 481 and to certain dicta in Scottish, etc., Insurance Company V/s. New Zealand Land Company 89 L.J. (P.C.) 220 and Rover V/s. South African Breweries (1918) L.R. 2 Ch. 233 which support the proposition that in England when profits arising abroad are liable under the English Income tax Act to pay income tax in England, a deduction is allowed in respect of the income or similar tax levied on such profits in the places where they arose; and if it were a question here of taxing under Section 3(1) of the Act profits arising outside British India on the ground that they were received in British India, those authorities would be applicable, but in my opinion they have no application to the present case. What have to be ascertained are the assessable profits arising in British India of the Eastern Extension Australasia and China Telegraph Company which is incorporated in England and has branches in India and elsewhere. But for the rule in question, those profits would be ascertained by taking the Indians receipts and debiting against them the expenditure necessary to earn them, and in such a calculation the amount of the tax itself would not be allowed as a deduction. The taxes levied locally on the assessable profits arising in other countries would not enter into the calculation at all. As, however, it would be difficult if not impracticable in the case of a business such as this to ascertain the expenditure properly debitable against the Indian receipts, the Government in the exercise of its statutory powers has provided that the assessable profits of the Indian branch without deduction of the Indian income tax shall be deemed to bear the same proportion to the total assessable profits of the company as the Indian receipts bear to the total receipts. As the Indian assessable profits are to be ascertained without deduction of the local income tax it must necessarily be the intention of the rule, that the total assessable profits of the business should be arrived at in the same way vis., without the deduction of the several local income taxes and excess profits taxes which are enhanced income taxes. Otherwise the whole basis of comparison would be gone; and, as observed in parapraph 5 of the order of reference, the opposite construction would involve holding that the word profits was used in two different senses in the same rule. The answer to the reference must be that the deductions claimed are not allowable. Costs Rs. 250 to be paid by the assessee to Government. Oldfield, J.

(2.) I agree. It is no doubt satisfactory that, as my lord has shown, the construction claimed by the Crown corresponds with a reasonable result. But the Rule to be construed is statutory and there is no suggestion before us that it must be regarded as valid or invalid according as one or other of the alternative constructions proposed is adopted. In the circumstances it seems to me, with all due deference that we need not go beyond the wording of the Rule in order to reach our conclusion. It is impossible in accordance with the ordinary canons of construction to give to the word profits a different meaning in the two places, in which it occurs; and, as where it occurs first it is used statedly of profits, on which the tax has to be ascertained, that is of profits before they have been taxed, it must be similarly used where it occurs again and where its meaning is disputed. This entails acceptance of the argument for the Crown and, as it is not disputed that foreign Super-tax and income tax stand on the same footing, an answer to the reference that the deductions claimed are inadmissible. Kumaraswamy Sastri, J.

(3.) The question referred to us for decision is, whether the Eastern Extension Australasia and China Telegraph Company Limited which is incorporated in England and has branches in India and elsewhere is under Section 33 of the Income tax Act and the rules framed thereunder entitled to deduct from the assessable profits excess profits duty payable in England and income tax payable in England and stations outside British India Section 33 of the Income tax Act renders persons residing out of British India taxable in respect of profits or gains " accruing or arising to such persons, whether directly or indirectly through or from any business connection in British India " which is deemed to be income accruing or arising in British India. As it is not possible to ascertain accurately the profits made in British India of such firms, rules were framed under the statutory power conferred by Section 43(2)(c) which enable the Government to frame rules " prescribing the manner in which and the procedure by which the. taxable income of persons not resident in British India or of persons deemed to be assessees in respect thereof shall be arrived at." One of the rules runs as follows :--" In cases in which the method of assessment on a percentage of turnover is inapplicable--as for example--the case of an Indian Branch of a Foreign Insurance Company--the profits of the Indian Branch may be assumed for purposes of income tax to bear the same proportion to the total profits of the company as its receipts bear to the total receipts ".