Case: The Commissioner Of Income-Tax, Bombay Vs. Dharamdas Hargovindas

Wanchoo, J.1. On behalf of himself and Gajendragadkar J.) In this matter by our order made on 24th April 1958, we had referred the case back to the Tribunal to submit a further statement of case on certain questions. That statement of case has now been drawn up by the Tribunal and sent to this Court. The matter is now ready for decision.2. This is an appeal by the Commissioner of Income-tax, Bombay, against the judgment of the High Court at Bombay given on a reference under S. 66 (2) of the Income-tax Act answering the question referred, in the negative. That question was, "Whether, in any event, on the facts found by the Tribunal, there was any remittance by the petitioner to Bombay within the meaning of and assessable under S. 4 (1) (b) (iii) of the Income-tax Act." The assessment year concerned was 1948-49, the accounting year being 2003 Samvat.3. The facts found may now be stated. At the relevant time, Bhavnagar was a ruling State and therefore outside British India. There was a mill there which we shall, for brevity, call the Bhavnagtar Mills. The assessee and his brother Gordhandas had large sums in deposit with the Bhavnagar Mills, These sums were profits earlier earned by the assessee and his brother in Bhavnagar. The amounts deposited belonged to the assessee and his brother in equal shares. The Bhavnagar Mills kept an account of these deposits. This account showed that on 7th April 1947, a sum of Rs. 50,000 had been paid out to Harkisondas Ratilal and another sum of the same amount of Dilipkumar Trikamlal. There is another mill in Bombay which we shall call the Bombay Mills. The account of the Bombay Mills showed that on 3rd April 1947, Rs. 50,000 had been received from each of Harkisondas Ratilal and Dilipkumar Trikamlal, Harkisondas Ratilal and Dilipkumar Trikamlal were the benamidars for the assessee and his brother and the entries indicated that the moneys had been withdrawn from the Bhavnagar Mills by the assessee and his brother and advanced to the Bombay Mills. The assessee and his brother were in full control of both the Bhavnagar Mills and the Bombay Mills.4. On these facts the Tribunal had come to the conclusion that there had been a remittance of the assessees profits from Bhavnagar to Bombay, namely, Rs. 50,000 being half of the amounts mentioned above, on account of his share and such remittance was taxable under S. 4 (1) (b) (iii). The assessee raised the question with which we are concerned in view of this decision.5. The High Court held that under the section income is taxable only when it is brought into or received in the taxable territory by the assessee himself and not when it is so brought into or received on behalf of the assessee and that all that the facts found by the Tribunal showed was that the assessee disposed of his accumulated income in Bhavnagar by directing his debtor, the Bhavnagar Mills, to pay an amount not to himself but to a third party, namely, the Bombay Mills. According to the High Court, "The result was that only one debtor was substituted for another. This did not amount to a receipt of the money by the assessee himself in Bombay or to a bringing of it into Bombay by him." In this view of the matter, the High Court answered the question referred in the negative.6. When the appeal was heard by us on the earlier occasion, the learned advocate for the appellant contended that even on the basis on which the High Court had proceeded, namely, that there was only a substitution of one debtor for another, it has to be said that the money was received by the assessee himself in Bombay. The contention was that the respondent could not become a creditor of the Bombay Mills unless he advanced the moneys to them. His point was that even assuming that the receipt of the cheque by the Bombay Mills drawn in its favour by the Bhavnagar Mills did not amount to receipt of moneys by the respondent, as soon as the Bombay Mills credited the amount of it to the respondent, there was notionally a receipt of the money by the assessee and an advance of it by him to the Bombay Mills to create the debt. The learned advocate for the assessee said in answer to this contention that there was nothing to show that the agreement for the advance of the money by the assessee to the Bombay Mills had not been made at Bhavnagar. He also said that there was nothing to show as to how the money or the cheque came from Bhavnagar to Bombay and that it might have been that it was agreed between the assessee and the Bombay Mills at Bhavnagar that the money would be deposited in the Bombay Mills to the credit of the assessee and the cheque or the money might have been delivered to the Bombay Mills or its agent at Bhavnagar. His contention was that if such was the case- and on the evidence it could not be said that it was not-then the notional receipt of the money by the assessee and its advance by him to the Bombay Mills, if any, would have taken place in Bhavnagar and when the money was thereafter brought to Bombay, it was the Bombay Mills own money. In this view of the matter, according to the learned advocate for the assessee, the moneys could not be subject to tax under the section.7. In this position of the arguments then advanced, we observed as follows:"It seems to us that this contention of the learned advocate for the respondent has to be dealt with before this appeal can be finally disposed of. We therefore think it fit to refer the case back to the Tribunal to submit a further statement of case, after taking such evidence as may be necessary, as to show how the cheque was brought from Bhavnagar to Bombay and what agreement had been made between the parties concerned as a result of which the amount of the cheque was credited in the names of Harkison Ratilal and Dilipkumar Trikamlal in the accounts of the Bombay Mills. The Tribunal will submit its report within four months.In view of this order we refrain from expressing any opinion on any of the points argued at the bar."8. It is pursuant to this order that the further statement of case has been submitted by the Tribunal. In its statement of case now submitted the Tribunal found the following facts: The Bhavnagar Mills had an account in the Bank of India Limited at one of its Bombay branches. A cheque book in respect of this account was with the assessee who had power to operate it on behalf of the Bhavnagar Mills. The assessee acting on behalf of the Bhavnagar Mills drew a cheque on the Bhavnagar Mills aforesaid account in the Bank of India Limited on April 3, 1947, in favour of self. This was done in Bombay. This cheque was handed over by the assessee to the Bombay Mills in Bombay for being credited in the account of the Bombay Mills in the names of Harkison Ratilal and Dilipkumar Trikamlal which were really the benami names of the assessee and his brother. The Bombay Mills on the same date presented this cheque to another branch of the Bank of India Ltd. in Bombay where they had an account, for deposit in that account. The actual entries in the books of the different branches of the Bank were made on April 5, 1947. The Bombay Mills also made entries in their own books crediting the moneys received on the cheque, to Harkison Ratilal and Dilipukumar Trikamlal. The assessee in his turn instructed the Bhavnagar Mills to debit the joint account of himself and his brother with it in the sum of Rs. 1 lac as having been paid to Harksion Ratilal and Dilipkumar Trikamlal. This entry was actually made a little later, namely, on April 7, 1947. The facts now found would show that nothing had been done at Bhavnagar. It was also found that as the Bombay Mills needed moneys and the assessee had money with the Bhavnagar Mills, he utilised these latter moneys for an advance being made by him out of it to the Bombay Mills.9. As will appear from our earlier order hereinbefore set out, none of the points arising in the appeal had been decided by us on that occasion. The question that we have to decided is whether on these facts it can be said that income had been brought into or received in Bombay by the assessee. The relevant portion of the section is in these terms:"4 (1) Subject to the provisions of this Act the total income of any previous year of any person includes all income, profits and gains from whatever source derived which-(a) are received or are deemed to be received in the taxable territories in such year by or on behalf of such person, or(b) if such person is resident in the taxable territories during such year-(i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or(ii) accrue or arise to him without the taxable territories during such year, or(iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year, or(c) if such person is not resident in the taxable territories during such year, accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year."In the present case we are concerned with cl. (b). In order however to understand what the words "brought into or received in the taxable territories by him" mean we have to consider the whole scheme of this sub-section. The sub-section mainly deals with the total income of any previous year which is chargeable to income-tax under S. 3 of the Act. It is divided into three parts. The first part, which is cl. (a) provides that all income, profits and gains received or deemed to be received in the taxable territories in such year by or on behalf of such person will be included in the taxable income. So far as cl. (a) is concerned, it is immaterial whether the person is resident in the taxable territories or is not resident therein; as long as income etc, is received in the taxable territories by or on behalf of such person in the previous year, it is liable to the included in the computation of total income. Under this clause therefore it is the receipt in the previous year that is material and the residence of the person to be taxed is immaterial. It has been held under this clause that receipt must be the first receipt in the taxable territories and if income etc has been received elsewhere in the same year and is then brought into the taxable territories it should not be considered to be income etc. received in such year in the taxable territories: (See Keshav Mills Ltd. v. Commr. of Income-tax, 1953 S C R 950: (AIR 1953 S C 187)). The basis of this decision obviously is that cl. (a) is dealing with the receipt of income etc, in the taxable territories in the year in which it has accrued or arisen and in those circumstances it is the first receipt of such income in the taxable territorises that gives rise to liability of the charge of income-tax. If such income etc. accruing or arising in the previous year has already been received outside the taxable territories it cannot be said to be received again as such in the taxable territories, if it is brought from the place where it was received as such into the taxable territories.10. The second part which is cl. (b) deals with the case of a person who is a resident in the taxable territories during such year. In his case all income which accrues or arises or is deemed to accrue or arise to him in the taxable territories during such year is chargeable to income-tax; besides, all income etc., which accrues or arises to him without the taxable territories during such year is also chargeable to income-tax.11. Then comes the part with which we are directly concerned and which provides that all income etc. which having accrued or arisen to such person without the taxable territories before the beginning of such year and after the first day of April 1933 is brought into or received in the taxable territories by him during such year will be chargeable to income-tax. This is a special provision relating to income etc, which has accrued or arisen not in the previous year but in years previous to that though after April 1, 1933. This special provision relating to a person resident in the taxable territories must be distinguished from the provision in cl. (a) in connection with which it has been held that the receipt there meant must be the first receipt, for cl. (a) applies irrespective of whether the person is resident in the territories or not to income etc. of the previous year received in the taxable territories in the same year. Clause (b) (iii) on the other hand refers to income etc. which accrued before the previous year and is brought into or received in the taxable territories in such year by a person resident therein, and obviously the considerations which led this Court to hold in Keshav Mills Case, 1953 S C R 950 : (AIR 1953 S C 187) that the receipt in cl. (a) means that first receipt would not apply to this special provision in cl. (b) (iii).12. Mr. Pathak for the appellant however argues that the words in cl. (b) (iii) are the same as in cl. (a), namely, "are received" and therefore the receipt in cl. (b) (iii) must also be the first receipt. These words however are not terms of art and in our opinion their meaning must receive colour from the context in which they are used. In the context of cl. (a) those words could only refer to the first receipt; but it does not follow from this that in the context of cl. (b) (iii) also they refer only to the first receipt.13. Let us see what cl. (b) (iii) is meant to provide for. It will be noticed that cl. (a), cl. (b) (i) and (ii) and cl. (c) deal only with income etc. which has arisen in the previous year while cl. (b) (iii) deals with a special class of cases where a person resident within the taxable territories had income etc. accruing or arising to him without the taxable territories and which he did not bring in the taxable territories as and when it arose but does so many years later. In such a case it stands to reason that the income etc. having arisen to such person, may be years before the previous year, must have been received by him outside the taxable territories; but it is urged that cl. (b) (iii) does not speak of receipt outside the taxable territories but only speaks of income etc. having accrued or arisen to him without the taxable territories and that it is possible that though the income etc. might have accrued long ago it might not have been received even outside the taxable territories. This is theoretically possible, but in our opinion it is clear that when cl. (b) (iii) speaks of income etc. having accrued or arisen without the taxable territories it is implicit in it further that such income etc. having accrued or arisen without the taxable territories had already been received there. Considering that cl. (b) (iii) applies to all income having accrued or arisen after the first day of April 1933 (that is more than 27 years ago now) it does not seem reasonable to hold that the words "having accrued or arisen" used in that clause have no reference to its receipt also outside the taxable territories. It seems to us therefore that what cl. (b) (iii) provides is that if any income etc. hand arisen or accrued outside the taxable territories and had been received there sometime before the previous year and if such income etc. is brought into or received in the taxable territories by such person in the previous year it will be liable to be charged under S. 3.In the circumstances, looking to the special provision of cl. (b) (iii) it would be reasonable to infer that what it contemplates is bringing into or receipt in the taxable territories in the previous year of income etc. which had already accrued or arisen without the taxable territories earlier than the previous year and may have also been received there. Any other interpretation would really make that part of cl. (b) (iii) which refers to "received in the taxable territories" more or less useless, for it is not likely that income having accrued or arisen outside the taxable territories before the previous year should not have been received also outside the taxable territories. Therefore, the reasonable interpretation of cl. (b) (iii) is that if a person resident in the taxable territories who has already received without the taxable territories any income etc. accuring or arising to him without the taxable territories before the previous year brings that income into or receives that income in the taxable territories he would be chargeable to income-tax under S. 3. Therefore, for the purpose of cl. (b) (iii) the receiving in the taxable territories need not be the first receipt. We shall later consider what will be the effect of this interpretation on the facts of this case.14. Then there is cl. (c), which deals with the case of a person resident outside the taxable territories to whom income etc. has accrued or arisen or is deemed to have accrued or arisen in the taxable territories during the previous year. It will thus be seen that cl. (a) deals with a person who may or may not be a resident in the taxable territories and makes the income etc. accruing or arising to him in the previous year liable to income-tax if it is received or deemed to be received by him in the taxable territories also within the same year; cl. (b) deals with the case of a person who is resident in the taxable territories and gives a wider definition of the total income and cl. (c) deals with a person not resident in the taxable territories and makes only such of his income as accrues or arises or is deemed to accrue or arise in the previous year in the taxable territories liable to income-tax in addition to what is provided in cl. (a).15. Let us now see on the facts of this case where the respondent can be said to have received this sum of Rs. 50,000 in the taxable territories during the previous year. The statement of the case shows that this sum was income etc. of the respondent which accrued to him outside the taxable territories and had been received by him there and deposited in the Bhavnagar Mills in his account. It is also clear from the facts which we have set out already that this money which was lying to the credit of the respondent in the Bhavnagar Mills was received by him by means of a cheque on the Bank of India Ltd., Bombay, in which the Bhavnagar Mills had an account and on which the respondent had the authority to draw. Having thus drawn the money by a cheque on the said bank, the respondent advanced it to the Bombay Mills and the cheque was cashed by the Bombay Mills and the money was credited into the account of the respondents benamidars in the Bombay Mills.There was thus clearly receipt in the previous year of income etc. which had accrued to the respondent outside the taxable territories before the previous year and he would therefore be chargeable under S. 3 of the Act with respect to this amount.16. The High Court has held that the income would be taxable only when it is brought into or received in the taxable territories by the assessee himself and not when it was so brought or received on behalf of the assessee. The relevant words of cl. (b) (iii) with which we are concerned are these: "are brought into or received in the taxable territories by him during such year". We have held that this is a case of receipt by the respondent in the taxable territories; it is therefore unnecessary to consider in the present case whether the words "brought into the taxable territories by him" mean that the income must be brought in by the person himself as held by the High Court. This being a case of receipt, there can be no doubt that income etc. was received by the respondent and the indirect method employed in this case for receiving the money would nonetheless make it a receipt by the respondent himself. Reference in this connection may be made to Bipin Lal Kuthiala v. Commissioner of Income-tax, Punjab, (S) AIR 1956 S C 634, where it was held that the money was received by the assessee even though in fact what had happened there was that the assessee directed his debtor in Jubbal which was outside the taxable territories to pay money to his creditor in British India. It was held that in the circumstances there was receipt of income in British India, though the method employed was indirect. We are therefore of opinion that the respondent is liable to pay income-tax on the sum of Rs. 50,000 under S. 4 (1) (b) (iii) of the Act and the question framed therefore must be answered in the affirmative.

Decision reasoning: 1[ds]These words however are not terms of art and in our opinion their meaning must receive colour from the context in which they are used. In the context of cl. (a) those words could only refer to the first receipt; but it does not follow from this that in the context of cl. (b) (iii) also they refer only to the first receipt.13. Let us see what cl. (b) (iii) is meant to provide for. It will be noticed that cl. (a), cl. (b) (i) and (ii) and cl. (c) deal only with income etc. which has arisen in the previous year while cl. (b) (iii) deals with a special class of cases where a person resident within the taxable territories had income etc. accruing or arising to him without the taxable territories and which he did not bring in the taxable territories as and when it arose but does so many years later. In such a case it stands to reason that the income etc. having arisen to such person, may be years before the previous year, must have been received by him outside the taxable territories; but it is urged that cl. (b) (iii) does not speak of receipt outside the taxable territories but only speaks of income etc. having accrued or arisen to him without the taxable territories and that it is possible that though the income etc. might have accrued long ago it might not have been received even outside the taxable territories. This is theoretically possible, but in our opinion it is clear that when cl. (b) (iii) speaks of income etc. having accrued or arisen without the taxable territories it is implicit in it further that such income etc. having accrued or arisen without the taxable territories had already been received there. Considering that cl. (b) (iii) applies to all income having accrued or arisen after the first day of April 1933 (that is more than 27 years ago now) it does not seem reasonable to hold that the words "having accrued or arisen" used in that clause have no reference to its receipt also outside the taxable territories. It seems to us therefore that what cl. (b) (iii) provides is that if any income etc. hand arisen or accrued outside the taxable territories and had been received there sometime before the previous year and if such income etc. is brought into or received in the taxable territories by such person in the previous year it will be liable to be charged under S. 3.In the circumstances, looking to the special provision of cl. (b) (iii) it would be reasonable to infer that what it contemplates is bringing into or receipt in the taxable territories in the previous year of income etc. which had already accrued or arisen without the taxable territories earlier than the previous year and may have also been received there. Any other interpretation would really make that part of cl. (b) (iii) which refers to "received in the taxable territories" more or less useless, for it is not likely that income having accrued or arisen outside the taxable territories before the previous year should not have been received also outside the taxable territories. Therefore, the reasonable interpretation of cl. (b) (iii) is that if a person resident in the taxable territories who has already received without the taxable territories any income etc. accuring or arising to him without the taxable territories before the previous year brings that income into or receives that income in the taxable territories he would be chargeable tounder S. 3. Therefore, for the purpose of cl. (b) (iii) the receiving in the taxable territories need not be the first receipt. We shall later consider what will be the effect of this interpretation on the facts of this case.14. Then there is cl. (c), which deals with the case of a person resident outside the taxable territories to whom income etc. has accrued or arisen or is deemed to have accrued or arisen in the taxable territories during the previous year. It will thus be seen that cl. (a) deals with a person who may or may not be a resident in the taxable territories and makes the income etc. accruing or arising to him in the previous year liable toif it is received or deemed to be received by him in the taxable territories also within the same year; cl. (b) deals with the case of a person who is resident in the taxable territories and gives a wider definition of the total income and cl. (c) deals with a person not resident in the taxable territories and makes only such of his income as accrues or arises or is deemed to accrue or arise in the previous year in the taxable territories liable toin addition to what is provided in cl. (a).15. Let us now see on the facts of this case where the respondent can be said to have received this sum of Rs. 50,000 in the taxable territories during the previous year. The statement of the case shows that this sum was income etc. of the respondent which accrued to him outside the taxable territories and had been received by him there and deposited in the Bhavnagar Mills in his account. It is also clear from the facts which we have set out already that this money which was lying to the credit of the respondent in the Bhavnagar Mills was received by him by means of a cheque on the Bank of India Ltd., Bombay, in which the Bhavnagar Mills had an account and on which the respondent had the authority to draw. Having thus drawn the money by a cheque on the said bank, the respondent advanced it to the Bombay Mills and the cheque was cashed by the Bombay Mills and the money was credited into the account of the respondents benamidars in the Bombay Mills.There was thus clearly receipt in the previous year of income etc. which had accrued to the respondent outside the taxable territories before the previous year and he would therefore be chargeable under S. 3 of the Act with respect to this amount.16. The High Court has held that the income would be taxable only when it is brought into or received in the taxable territories by the assessee himself and not when it was so brought or received on behalf of the assessee. The relevant words of cl. (b) (iii) with which we are concerned are these: "are brought into or received in the taxable territories by him during such year". We have held that this is a case of receipt by the respondent in the taxable territories; it is therefore unnecessary to consider in the present case whether the words "brought into the taxable territories by him" mean that the income must be brought in by the person himself as held by the High Court. This being a case of receipt, there can be no doubt that income etc. was received by the respondent and the indirect method employed in this case for receiving the money would nonetheless make it a receipt by the respondent himself. Reference in this connection may be made to Bipin Lal Kuthiala v. Commissioner ofPunjab, (S) AIR 1956 S C 634, where it was held that the money was received by the assessee even though in fact what had happened there was that the assessee directed his debtor in Jubbal which was outside the taxable territories to pay money to his creditor in British India. It was held that in the circumstances there was receipt of income in British India, though the method employed was indirect. We are therefore of opinion that the respondent is liable to payon the sum of Rs. 50,000 under S. 4 (1) (b) (iii) of the Act and the question framed therefore must be answered in the affirmative.