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Indian Case Summary

A.H. Wadia vs Commissioner Of Income-Tax on 24 November, 1948 – Case Summary

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In the case of A.H. Wadia vs Commissioner Of Income-Tax on 24 November, 1948, the Bombay High Court was tasked with examining a dispute between the agent of the Gwalior Durbar and the Indian Income-tax authorities. The Durbar, which had been involved in various trade and business operations, was not treated as an assessee under the Indian Income-tax Act. However, the Indian Income-tax authorities sought to make the Durbar liable under the Government Trading Taxation Act, III of 1926.

The appellant, A.H. Wadia, was the agent of the Gwalior Durbar. The Durbar had been participating in various trade and business operations, both within and outside the Gwalior State. The Durbar had appointed Mr. F.E. Dinshaw as its agent in Bombay for its trade or business operations. The record showed that money was advanced as a loan and also on the security of immovable properties.

The dispute in the appeal related to the assessment of the Durbar for the assessment year 1939-40. The appellant was dissatisfied with the assessment order of the Income-tax Officer and filed an appeal to the Appellate Assistant Commissioner, Income-tax, Bombay. The appellant then asked for a reference to elicit the opinion of the High Court on certain questions.

The High Court of Bombay answered all six questions against the appellant. The questions pertained to whether certain sums received by the Durbar were assessable under the provisions of the Indian Income-tax Act read with the Government Trading Taxation Act III of 1926. The court also examined whether the Durbar was entitled to a refund or a set off under the Income-tax Act of income-tax alleged to have been paid by it as a shareholder in respect of the dividend received by it during the previous year.

The court found that all the four sub-heads of income mentioned in Section 42(1) showed a real connection between the person sought to be taxed and India and therefore the legislation was within the powers of the Indian Legislature. The contention of the appellant that Section 42(1) was extraterritorial in its operation and is therefore invalid, failed.

The court also found that the legislation was not ultra vires. The court held that the municipal Courts are bound to enforce the law. Whether after obtaining the opinion or decree the same is enforceable against the other side or not, is not a matter for the Court’s consideration. The Court has only to see that the legislation is within the ambit of the powers of the Legislature.

In conclusion, the court ruled against the appellant, A.H. Wadia, upholding the assessment of the Durbar for the assessment year 1939-40 under the provisions of the Indian Income-tax Act read with the Government Trading Taxation Act III of 1926.