# SUTLEJ COTION MILLS LTD v. COMMISSIONER OF INCOME TAX, WEST BENGAL HI, CALCU.TIA

- **Citation:** [1990] Supp. 2 S.C.R. 293
- **Court:** Supreme Court of India
- **Decided:** 1990-10-23
- **Case number:** Civil Appeal Nos. H 1467-69 of 1976
- **Bench:** T.K. Thommen, S.C. Agrawal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sutlej-cotion-mills-ltd-v-commissioner-of-income-tax-west-bengal-hi-calcu-tia-11025
- **Pages:** 7

## Headnote

Income Tax Act, 1922: Sections 14(2)(c) and 42(3)-AssesseeResident in British India-Remittances from native Scates-Whether
liable ,to be assessed-In addition to assessment of profics from native
States as deemed income from British India-Principle of attributionApplicability of.
The appellant, a company resident in British India, bad a cotton
mill. The cloth manufactured in the mill was sold in British India as
well as native States. For the assesmient years I94S-46, I946-47 and
I947-48, the company was assessed under Section 14(2)(c) of the Income
Tax Act, 1922, in respect of certain sums remitted to British hidia from
native States, in addition to the assessment under Section 42(3), deeming I/3rd of the profit from the sales effected in native States, as having
accrued from the manufacturing part of business in British India.
The assessee's contention that I/3rd of income having been assessed undet Section 42(3), as income deemed to have accrued in British
India, no further assessment should be made under Section I4(2)(c) was
rejected by the Income Tax Officer, the Appellate Assistaot Commissioner and the Income Tax Appellate Tribunal. The Tribunal also
rejected the assessee's additional contention that .if the remittances
made to British India in any year exceeded the amount taxed under
Section 42(3), then it was only so much of the excess which could be
taxed under Section I4(2)(c). However, it reduced the additions made
by the Income Tax Officer and eftlrmed by the appellate authority, by
I/3rd of such remittances. Ou a reference made under Section 66(I),
the High Coilrt confirmed the Tribunal's decision.
In the appeal before this Court, on behalf of the appellantassessee it was contended that where there was a mixed fund, as in the
instant case, consisting partly of taxed and partly of untaxed monies,
any remittance made should be deemed to have been pai~ out of that
293
A
B
D
E
F
G
H
A
B
c
294
SUPREME COURT REPORTS
[1990) Supp. 2 S.C.R.
part of the money which bad suffered tax and that it was the right of the
tax payer to attribute the payment to the taxed money so as to obtain the
benefit allowed by the law.
Dismissing the appeals, this Court,
HELD: 1.1 H there were two funds at the disposal of the
assessee-one upon which tax had been already levied and another
which was liable to be brought to tax-a presumption, in the absence of
evidence to the contrary might arise that the remittance made .by the
assessee in the course of its business was made out of the fund that was
already taxed and not out of the fund that remained to be taxed. [297F).
Meyyappa Chettiarv. The Commissioner of Income-Tax, [1933) 1
ITR 37, 45, referred to.
1··:
D
l.2. The tax payer is given the right of attribution in the way most
favourable to himself. In the absence of evidence to the contrary, it is
presumed that payments are made out of income. This abstract princi·
pie of attribution is applicable in certain circumstances. Whether it is
applicable in a particular case dependS upon the facts of that case and
the provisions of the statute. It can be adopted only to the extent that it
E
is consistent with the law and facts. [298E-F)
F
Paton (As l'enton's Trustee) vi Commissioners of Inland
Revenue, 21 Tax Cases 626 and The Cape Brandy Syndicate v. The
Commissioners of Inland Revenue, I2 Tax Cases 359, 366, referred to.
In the instant case, on the facts found the assessee did not have
two funds, but only one fund composed of taxed and non-taxed
amounts. As one third of this iimount had already been taxed under
section 42(3) of the Act, I/3rd of the remittances to British India in a
particular year was held to he exempted from levy. The Tribunal havG
ing excluded I/3rd of the remittances to British India from taxation
during a particular year, the High Court was justified in refusing to
grant any fUrther relief to the assessee. [297G; 299B)

## Text

SUTLEJ COTION MILLS LTD.
v.
COMMISSIONER OF INCOME TAX, WEST BENGAL HI,
CALCU.TIA
OCTOBER 23, 1990
[T.K. THOMMEN AND S.C. AGRAWAL, JJ.]
Income Tax Act, 1922: Sections 14(2)(c) and 42(3)-AssesseeResident in British India-Remittances from native Scates-Whether
liable ,to be assessed-In addition to assessment of profics from native
States as deemed income from British India-Principle of attributionApplicability of.
The appellant, a company resident in British India, bad a cotton
mill. The cloth manufactured in the mill was sold in British India as
well as native States. For the assesmient years I94S-46, I946-47 and
I947-48, the company was assessed under Section 14(2)(c) of the Income
Tax Act, 1922, in respect of certain sums remitted to British hidia from
native States, in addition to the assessment under Section 42(3), deeming I/3rd of the profit from the sales effected in native States, as having
accrued from the manufacturing part of business in British India.
The assessee's contention that I/3rd of income having been assessed undet Section 42(3), as income deemed to have accrued in British
India, no further assessment should be made under Section I4(2)(c) was
rejected by the Income Tax Officer, the Appellate Assistaot Commissioner and the Income Tax Appellate Tribunal. The Tribunal also
rejected the assessee's additional contention that .if the remittances
made to British India in any year exceeded the amount taxed under
Section 42(3), then it was only so much of the excess which could be
taxed under Section I4(2)(c). However, it reduced the additions made
by the Income Tax Officer and eftlrmed by the appellate authority, by
I/3rd of such remittances. Ou a reference made under Section 66(I),
the High Coilrt confirmed the Tribunal's decision.
In the appeal before this Court, on behalf of the appellantassessee it was contended that where there was a mixed fund, as in the
instant case, consisting partly of taxed and partly of untaxed monies,
any remittance made should be deemed to have been pai~ out of that
293
A
B
D
E
F
G
H
A
B
c
294
SUPREME COURT REPORTS
[1990) Supp. 2 S.C.R.
part of the money which bad suffered tax and that it was the right of the
tax payer to attribute the payment to the taxed money so as to obtain the
benefit allowed by the law.
Dismissing the appeals, this Court,
HELD: 1.1 H there were two funds at the disposal of the
assessee-one upon which tax had been already levied and another
which was liable to be brought to tax-a presumption, in the absence of
evidence to the contrary might arise that the remittance made .by the
assessee in the course of its business was made out of the fund that was
already taxed and not out of the fund that remained to be taxed. [297F).
Meyyappa Chettiarv. The Commissioner of Income-Tax, [1933) 1
ITR 37, 45, referred to.
1··:
D
l.2. The tax payer is given the right of attribution in the way most
favourable to himself. In the absence of evidence to the contrary, it is
presumed that payments are made out of income. This abstract princi·
pie of attribution is applicable in certain circumstances. Whether it is
applicable in a particular case dependS upon the facts of that case and
the provisions of the statute. It can be adopted only to the extent that it
E
is consistent with the law and facts. [298E-F)
F
Paton (As l'enton's Trustee) vi Commissioners of Inland
Revenue, 21 Tax Cases 626 and The Cape Brandy Syndicate v. The
Commissioners of Inland Revenue, I2 Tax Cases 359, 366, referred to.
In the instant case, on the facts found the assessee did not have
two funds, but only one fund composed of taxed and non-taxed
amounts. As one third of this iimount had already been taxed under
section 42(3) of the Act, I/3rd of the remittances to British India in a
particular year was held to he exempted from levy. The Tribunal havG
ing excluded I/3rd of the remittances to British India from taxation
during a particular year, the High Court was justified in refusing to
grant any fUrther relief to the assessee. [297G; 299B)
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
H
1467-69 of 1976.
SUTLEJ COTION MILLS' v. C .l.T. [THOMMEN, J.]
295
Appeals by Certificate from the Judgment and Order dated
7 .5. 1965 of the Calcutta High Court in Income Tax Reference No. 28
of 1954.
B. Sen, N.B. Singh, Sanjay J. Khaitan, Darshan Singh, B.N.
Dhar and Ms. Suman Khaitan for the Appellant.
· S.C. Manchanda, S. Rajappa and Ms .. A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
THOMMEN, J. These appeals by the assessee arise froin the
judgment dated 7.5.1965 of the Calcutta High Court. The question
relates to the assessment for the years 1945-46, 1946-47 and 1947-48
under the Indian Income Tax Act, 1922 (hereinafter referred to as
"the Act"). The assessee was a company resident in British India ·
during the relevant years .. It had a cotton mill in British India. The
cloth manufactured by the mill was sold in British India as well as in
the native States. In the assessment for 1944-45, it had been held that,
for the sales effected in the native States, 1/3rd of the profit was, in
terms of section 42(3) of the Act, deemed to have accrued to the
assessee in British India. This profit was considered as the profit
attributed to the manufacturing part of the business .carried out in
British India, although the sales were effected in the native States. On
the same basis, assessment in terms of section 42(3) was made in
respect of the assessment years 1945-46, 1946-47 and 1947-48. In addition to the deemed income in British India, the assessee was assessed
under section 14(2)( c) of the Act in respect of certain sums remitted to
British India from the native States.
A
B
c
D
E
F
The assessee's· contention that 1/3rd of the income having been
assessed under section 42(3) of the Act as income deemed to have
accrued in British India, no furhter assessment should be made under
section 14(2)( c) of the Act with respect to profits brought into British
India, was rejected by the Income Tax Officer as well as the Appellate
Assistant Commissioner. On further appeal, the Income Tax AppelG
late Tribunal also held that there was no substance in that contention.
The Tribunal stated~
" ..... the assessment of profits brought into British India
from a' Native State under Section 14(2)(c) is on a distinct
and separate footing from the assessment of Native States
H
A
B
c
D
296
SUPREME COURT REPORTS
[1990] Supp. 2 S.C.R.
profits which are deemed to have accrued in British India
under Section 42 ...... "
The assessee raised an additional contention for the first time
before the Tribunal. That contention was that the remittances made to
British India had to be taken as having first come out of profits
"deemed to have accrued in British India" and brought to tax under
section 42(3), and only the excess remittances, if any, could be taken
as having come out of the remainder profits exempted from tax under
section 42. The assessee pointed out that I/3rd of the profits having
been already charged under section 42(3), by reason of the legal fiction
contained in that sub-section, any amount brought into British India
upto the extent of !/3rd should be presumed to be that which was
attributable to that I/3rd which had already suffered tax, and the
balance remittance, if any, alone should be taxed under section
14(2)(c) of the Act. In other words, according to the assessee, if the
remittances made to British India in any accounting year exceeded the
amount taxed under section 42(3) of the Act, then it was only so much
of that excess which could be taxed under section 14(2) of the Act. The
Tribunal did not accept this contention. However, it stated:
" ..... it appears to us that the common sense point of
view would be that the remittances to British India include
both the assessed as well as the exempt profits in the same
E
proportion in which those existed in the Native State .....
It therefore appears tq_,us that the correct view would be to
apportion the remittances over the assessed and the exempt
parts in the same proportion as these existed in the total
profits made in the Native State. As such proportion was
one third and two thirds, the remittances would be simiF
larly split up. Thus !/3rd of the remittances has come out of
profits assessed under Section 42. On this basis, these additions made by the Income-Tax Officer and confirmed by
the Appellate Assistant Commissioner will have to be
reduced by one third of such remittances."
G
On a reference under section 66(1) of the Act, the High Court by
its judgment dated 22.7 .1957, found that the facts stated were insufficient and that there was an error apparent on the face of the question
as framed. The High Court accordingly called for a supplementary
statement of the case.
H
In its supplementary statement, the Tribunal referred the follow·
ing question:
'"
SUTLEJ COTION MILLS v. C.J.T. [THOMMEN, J.]
297
"Whether on the facts and in the circumstances of the case,
the sums of Rs.SO, 195 for 1945-46, Rs. 76, 155 for 1946-47 A
and Rs.6,00,909 for 1947-48 assessments have been rightly
included in .the assessable income of the applicant under
Section 14(2)(c) of the Indian Income-tu Act as profits
brought into British India from Indian States?"
B
The High Court by its judgment dated 7.5.1965 rejected the
assessee's contention 'that, where there was a mixed fund composed of
taxed and non-taxed items and a neutral payment was made i.e. without specifying the exact source of the payment, the taxing authorities,
in the absence of any evidence to the' contrary, had to proceed on the
basis that the payment was made out of that part of the mixed fund
which had already borne tax. The High Court, however, observed:
C
" .... in this case the assessee did not have two funds but
only one fund composed of taxed and non-taxed amounts
and as one third of the entire amount of profits made by the
assessee in the Indian States had been subjected to tax the o
income-tax authorities took a reasonable view in excluding
one third of the reniit '"'!Ce to British India from taication in
each year. There wen. sufficient profits in each year out of
which remittance could be made even after deduction of
the portion which had been taxed ..... ".
In the result, the question referred was answered by the High Court
against the assessee. Hence the present appeals.
E
If there were two funds at the disposal of the assessee-one upon
which tax had been already levied and another which was liable to be
brought to tax-a presumption, in the absence of evidence to the F
contrary, might arise that the remittance made by the assessee in the
course of its business was made out of the fund that was already taxed
and not out of the fund that remained to be truced. See Meyyappa
Chettiar v. The Commissioner of Income-Ta,c, [1933] I ITR 37, 45.
That was apparently not the case here, for, on the facts found, the
assessee did not have two funds, but only one fund composed of taxed G
and non-taxed amounts. As one third of this amount had already been
taxed under section 42(3) of the Act, I/3rd of the remittances to
British India in a particular year was held to be exempted from levy.
Relying on the principle referred to in Paton (As Penton's
Trustee) v. Commissif'ners of Inland Revenue, 21 True Cases 626, Dr"
H
A
B
c
D
E
F
G
H
298
SUPREME COURT REPORTS
[1990] Supp. 2 S.C.R.
B. Sen, on behalf of the assessee, however, submits that where there
was a mixed fund, as in the present case, consisting partly of taxed and
partly of untaxed monies, any remittance made should be deemed to
have been paid out of that part of the money which had suffered tax. It
is a right of the tax-payer to attribute the payment to the taxed money,
so as to obtain the benefit allowed by the law.
Lord Wright, M.R. in Paton (As Pemon's Trustee) v. Commis·
sioners of Inland Revenue, 21 Tax Cases 626 at 639), referring to the
right of the tax-payer to attribute payment to taxed monies, stated:
" ..... in the ordinary course, a person paying interest does
not generally appropriate the payment to income or to any
particular piece of income or any specific asset: he has the
general body of available funds, say his banking account, if
he has only one, and he pays by drawings on that account,
which may include income, borrowed money, capital and
so forth. This is what is meant by payment out of a mixed
fund, or payments made out of the general till, or payments
made neutrally. The Revenue authorities have no right in
such cases to appropriate those payments to non-taxable
rather than taxable moneys. Hence the taxpayer is given
the right of attribution in the way most favourable to
himself It is presumed, in the absence of evidence to the
contrary, that payments are made out of income".
This principle of attribution is no doubt applicable in certain
circumstances, such as those narrated by Lord Wright in Paton
(supra), although in that case, on the facts found, the principle was not
applied.
Whetht:r that principle is applicable in a particular case depends
upon the facts of that case and the provisions of the statute. The
abstract principle of attribution, which is applicable in certain cir·
cumstances, can be adopted only to the extent that it is consistent with
the law and facts. It is well to recall:
" ..... there is no room for any intendment; there is no
equity about a tax: there is no presumption as to a tax; you
read nothing in; you imply nothing, but you look fairly at
what is said and at what is said clearly and that is the tax".
[Per Rowlatt, J. The Cape Brandy Syndicate v. The Com·
SUTLEJ COTTON MILLS v. C.1.T. [THOMMEN, J.)
299
missioners of Inland Revenue, 12 Tax Cases 359, 366].
A
The view taken by the Tribunal, with reference to the facts found and
the provisions of the statute, was, in our opinion, reasonable. It was so
found by the High Court.
In the circumstances, we hold that the Tribunal having excluded
I/3rd of the remittances to British India from taxation during a
particular year, the High Court was justified in refusing to grant any
further relief to the assessee.
Accordingly, we see no merit in these appeals and they are dismissed with costs throughout.
N.P.V.
Appeals dismissed.
B
c