S.N.A.S.A. Annamalai Chettiar vs Commissioner of Income Tax

Leach, C.J.—The assessee is a Nattukottai Chettiar and before the Japanese Occupation of the Malay Peninsula he carried on a money

lending business at Penang. While engaged in business there he became the owner of a number of houses from which he received rent. In the year

1941-42 he was assessed to tax under the Income Tax Act in respect of the income derived from these houses during the previous year. The tax

was levied on the basis of Section 9 ,of the Act. The assessee contended that Section 9 did not apply, but that Section 10 did. This contention was

rejected by the Income Tax authorities and by the Income Tax Appellate Tribunal, Calcutta Bench, on appeal from the order of the Additional

Appellate Assistant Commissioner. At the request of the assessee the Tribunal has referred the following question for the opinion of this Court,

Whether in the circumstances of the case, the provisions of Section 9, Income Tax Act, were rightly applied for assessment of the income from

house properties situated outside Birtish India.

Until the Act was amended in 1939 income accruing abroad to a resident of India was not taxable until it was brought into British India. By Act 7

of 1939 a resident in British India became liable to pay the tax on income accruing to him without British India as well as on his income within

British India. The assessee says that the Tribunal was wrong in holding that Section 9 can be applied to income derived by him from his house

property in Penang because the section was in the Act before Its amendment in 1939 and then only applied to income from property situate in

British India. He goes on to say that the income from his houses in Penang must be regarded as income accruing to him in the course of his

business, which means the application of Section 10. This latter argument is based on the decision of this Court in Ramaswami v. Commr, of

Income Tax, Madras AIR 1934 Mad. 59. In that case the assessee carried on a money lending business in Kaula Lumpur and received rents from

properties which he had taken over in satisfaction of loans granted by him in the course of his business. The income from these properties was

brought into British India, and the question was whether Section 9 was applicable. It was held that it was not and that the tax should be levied in

accordance with Section 10 as income derived from business carried on abroad, the properties having been acquired in the course of the business.

We consider that the decision in Ramaswami v. Commr, of Income Tax, Madras AIR 1934 Mad. 59 can no longer be applied. Foreign income is

now taxable whether brought into India or not. Section 6 sets out the heads of income chargeable and the third head is income from property.

When the Act was amended in 1939 by including income accruing abroad Section 9 automatically became applicable to income from house

property owned abroad. Moreover the proviso to Section 9 (1) (iv) itself gives clear indication that the Legislature did intend to make the section

applicable to income derived from property outside British India. Clause (iv) allows certain deductions to be made in calculating the taxable

amount of this class of income, but the proviso says that no allowance shall be made in respect of any interest or annual charge payable without

British India and chargeable under the Act, not being interest on a loan issued for public subscription before 1st April 1938, except interest or a

charge on which tax has been paid or from which tax has been deducted u/s 18 or in respect of which there is an agent for the payee in British

India who may be assessed u/s 43.

In this Court it has been suggested that if Section 10 does not apply, Section 12 does apply. Section 12 refers to income from ""other sources,

that is, income from sources not specifically dealt with in the earlier sections of the Act. If Section 10 cannot be applied, as we hold it cannot,

Section 12 is even more inappropriate.

We consider that the decision of the Tribunal upholding the assessment in accordance with Section 9 of the Act was right and we answer the

question referred accordingly.

The assessee will pay the costs of the Commissioner of Income Tax, Rs. 250.