Law: Income Tax Act, 1922

Section: 42(1), 66(1)

Income-tax-Income deemed to arise in taxable terri tories-Overdraft in London by bank in London to company in London to meet liabilities incurred to send machinery to India Whether income from money brought into taxable territories in cash or in kind-Indian Income-tax Act, 1922, S. 42(1). Calcutta Electric Supply Corporation, a company incorpo rated in England with its head office in London and carrying on business of supplying electricity in Calcutta and other places in India, applied to the assessee-bank, whose head office and registered office were in London and who has been assessed as a non-resident, for temporary financial accommodation to the extent of 1 million to meet liability incurred in connection with the building of the corporation's generating station in Calcutta, etc., which liability would mature progressively in the next 18 months. On May 31, 1950, the assessee-bank sanctioned an overdraft facility of 1 million which was increased later. The Income-tax Officer held that the interest received by the assessee bank from the corporation in the calendar years 1952 and 1953, relevant to the assessment years 1953-54 and 1954-55, was deemed to accrue on money brought into India "in kind" in the shape of electrical machinery and generators with the full knowledge of the assessee while granting the overdraft, and, therefore, the assessee fell within section 42(1) of the Indian Income-tax Act, 1922, even though the overdraft was granted to meet the contractual liability in respect of the capital expenditure already incurred. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the Income-tax Officer's order but reduced the quantum of interest received. On appeals to the Appellate Tribunal by both the assessee and the department, the Appellate Tribunal set aside the assessment holding (1) that section 42(1) had no application because the money lent by the assessee was not brought in cash or in kind in the taxable territories, as money meant a medium of exchange and must retain the character of money or its equivalent in drafts, cheques, etc., which were really acceptable in the commercial world for money and electric…