Law:

Section:

Section 18(3A) of the Indian Income-tax Act, 1922 - Deduction of tax at source from payment to non-resident - Assessment year 1948-49 - Whether there is nothing in language of section or in good sense or right reason to hold that "residence" contemplated in various sub-sections of section 18, particularly section 18(3A), is something new and strange and altogether different from "residence" contemplated by definitions upon which rest of Act is based - Held, yes - Whether, therefore, 'non-resident' mentioned in section 18(3A) of 1922 Act is also a non-resident in income-tax sense and not merely a party who is physically non-resident - Held, yes FACTS The respondent Jute Mills was a company incorporated under the Indian Companies Act and carried on business in India. In 1947, the company purchased the entire share capital in L & C Ltd. and the second larger lot was purchased from C Investment Trust Co. Ltd., a sterling company registered in the United Kingdom. The transaction concerned 1,900 preference shares, purchased at the rate of Rs. 135 per share and 2,450 ordinary shares, purchased at the rate of Rs. 332-8-0 per share. The total price paid by the respondent company to its vendors for that lot of shares was Rs. 10,71,125. Out of that sum, the respondent company retained in its hands an amount of Rs. 1,48,812-8-0. It is said that parties to the transaction thought that the profit made by the vendors out of this deal might attract the capital gains tax and since it was not unlikely that the respondent company would be treated as an agent of the vendors, it was considered expedient to retain an amount which would be sufficient to cover the tax liability. Apparently, till 1954, the amount continued to lie in the hands of the respondent company, no one making any demand for its payment or any payment out of it. In the meantime on 9-3-1953, the ITO, completed the assessment of the C Investment Trust Co. Ltd. for the assessment year 1948-49. That assessment had been made on the basis that the C Investment Trust Co. Ltd. was resident and ordinarily resident in India and the total amount of tax payable under it had been determined at Rs. 3,72,372. As the…

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