Law:

Section:

Income-tax-Reference to Supreme Court-Question of law--­Whether assessee carried on " business of banking "-Mixed question of law and fact-Test for "business of ,banking"-(Income Tax Ordinance of Ceylon and Rules). The question whether the Ceylon branch of a certain Bank carried on the business of banking at the relevant time is a question of mixed fact and law, involving the construction of the Ordinance and Rules. The words " banking " and " banker" may bear different shades of meaning at different periods of history, and their meaning may not be uniform today in countries of different habits of life different degrees of civilisation. The proper test for determining whether the Ceylon branch carried on the business of banking at the material time is to consider whether that branch, at that time, could fairly be described as " acompany which carries on as its principal business the accepting of deposits of money on current account or otherwise, subject to withdrawal by cheque, draft or order." JUDGMENT LORD MORTON OF HENRYTON.---This appeal is concerned with the amount at which the appellant company (hereafter called " the company " is liable to be assesssed to income-tax, under the Income-tax Ordinance of Ceylon, in respect of the income and profits of its Ceylon branch, conducted at an office in Colombo. The question for decision is whether, in computing the amount of the said income and profits, a deduction should be allowed in respect of a sum of Rs. 53,226, debited to the Ceylon branch by way of interest on balances due to the head office during the year ending 31st March, 1940. The answer to that question depends upon the construction of Rules made under the said Ordinance dealing especially with the taxation of the Ceylon branch of a non-resident bank, and upon the application of those Rules to the facts of the case. It has not been disputed that apart from these Rules, the deduction claimed is admissible, inasmuch as debits and credits as between a head office and the branches of a company are not expenses or receipts which come into account in computing the profits of the business of a branch. The relevant portions of the Income-tax Ordinance No. 2 of…

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