RAGHUNATH MADHAVLAL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is a reference under Section 66 of the Indian Income-tax Act.

(2.) The assessee is an undivided Hindu family. The assessment year is 1939-40 and the accounting year is S. Y. 1994. The assessee is a resident but not an ordinary resident and the total assessment was in the sum of Rs. 55,507 of which IRs. 29,310 is the amount of income in dispute. It is admitted that this arose outside British India and was brought into British India during the year of account, but the income did not accrue in the year of account but in the preceding year or years. The point is whether the second proviso of Section 4, Sub-section (I), of the Act qualifies Sub-section (3) of that section. Section 4 is not an artistically drawn up section, and it is necessary to examine the structure of the whole of it in order to understand its full effect bearing in mind that there are three categories of persons, viz. non-residents, persons who are ordinarily residents and persons, who, though residents, are not ordinarily residents. Section 4, Sub-section (7), commences by saying that the total income of any previous year of any person (i.e. all the three categories) includes all income, profits and gains from whatever sources derived which-(then there follow three alternative cases, the first alternative being) (a) are received or are deemed to be received in British India in such year by or on behalf of such person. Case (b) deals with the case in which the person is a resident in British India during such year and the income accrues or arises or is deemed to accrue or arise to him in British India during such year, or accrues or arises to him without British India during such year. Sub-clause (iii) of that Clause (viz. Clause (b) of Section 4(1)) is relevant to the reference before us and runs as follows:- (iii) having accrued or arisen to him without British India before the beginning of such year and after the 1 day of April, 1933, are brought into or received in British India by him during such year. Clause (c) of Section 4(1) deals with the case where such person is not resident in British India during such year and the income accrues or arises or is deemed to accrue or arise to him in British India during such year. These clauses are followed by three provisos. From the terms of the first proviso it is clear that it does not operate either upon Clause (a), Clause (b)(i) or Clause (c) because as the proviso itself shows it is to prevent tax being charged in the particular year there mentioned under Sub-clause (ii) and Sub-clause (iii) of Clause (b) at the same time. Leaving for the present the second proviso and passing to the third proviso it is also clear from its terms that that proviso cannot apply either to Clause (a) or to Clause (b)(i) or to Clause (c). Thus it is clear that although the three provisos are so arranged as to come at the end of the substantive part of Sub-section (1), the first and the third provisos apply only where they can be made to fit. With that introduction I now turn to the second proviso which is relevant to this case. It runs as follows:- Provided further that, in the case of a person not ordinarily resident in British India, income, profits, and gains which accruel or arise to him without British India shall not be so included unless they are derived from a business controlled in or a profession or vocation set up in India or unless they are brought into or received in British India by him during such year. Clearly therefore this proviso applies to Sub-clause (ii) of Clause (b). The question is as to its application to Sub-clause (iii) of that clause.

(3.) By Sub-clause (iii) of Clause (b) the total income there is included in the income of a resident person, profits and gains having accrued or arisen to such person without British India before the beginning of the account year and after April 1, 1933, and brought into or received in British India by him during that year. Therefore Sub-clause (iii) catches income which is brought into or received in British India by the assessee during the year. Although grammatically the second proviso must apply to Sub-clause (iii), there can never be a case in which it in fact gives relief to any tax-payer, because under Sub-clause (iii) tax only attaches to a particular type of income, profits and gains, i.e. income, profits and gains brought into or received in British India during such, i.e. the account year, and the benefit given by the second proviso is not to operate in certain events, and one of those events is that if the income, profits and gains are brought into or received in British India during such year (the words used in Sub-clause (iii) of that clause and in the second proviso are similar so that in effect the proviso can only give relief to taxation under Sub-clause (ii) of Clause (b)). The difficulty appears to arise from a too ambitious attempt to make the same proviso to apply to totally different circumstances contained in the sub-clauses to which all three provisos are appended. In my judgment the Appellate Tribunal have not taken a correct view of the matter and the question referred to us must be answered in the negative. The assessee to pay the costs of the reference. Kania, J.