MAZAGAON DOCK LTD. versus THE COMMISSIONER OF INCOME-TAX AND EXCESS PROFITS TAX

Citation: [1959] 1 S.C.R. 848 · Decided: 12-05-1958 · Supreme Court of India · Bench: T.L. VENKATARAMA AIYYAR, P.B. GAJENDRAGADKAR, A.K. SARKAR · Disposal: Dismissed

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Judgment (excerpt)

May za. 
848 
SUPREME COURT REPORTS 
[1959] 
MAZAGAON DOCK LTD. 
v. 
THE COMMISSIONER OF INCOME-TAX AND 
EXCESS PROFITS TAX 
(VENKATARAMA AIYAR, GAJENDRAGADKAR and 
A. K. SARKAR JJ.) 
Income Tax-Non-resident carrying on business with resident-
N o profit accruing from dealings between them-Assessment of resi-
dent-Validity-" Business", meaning of-Indian Income-tax Act, 
I922 (II of I922), S. 42(2). 
Under s. 42(2) of the Indian Income-tax Act, 1922, "Where 
a person not resident or not ordinarily· resident in the taxable 
territories carried on business with a person resident in the tax-
able territories, and it appears to the Income-tax Officer that 
owing to the close connection between such persons the• course 
of business is so arranged that the business done by the 
resident person with the person not resident or not ordinarily 
resident produces to the resident either no profits or less 
than the ordinary profits which might be expected to arise 
in that business, the profits derived therefrom, or which may 
reasonably be deemed to have been derived therefrom, shall be 
chargeable to income-tax in the name of the resident person 
who shall be deemed to be, for all the purposes of this Act, the 
assessee in respect of such income-tax", 
The appellant, a private limited company carrying on 
business as marine engineers and ship repairers had its registered 
office in Bombay and was resident and ordinarily resident in 
India, but its entire share capital was beneficially owned by two 
non-resident companies whose business consisted in plying ships 
for hire. Under an agreement between them the ships plied for 
hire by the non-resident companies were to be repaired by the 
appellant company at cost, charging .no profits. The Income-tax 
Officer made an assessment on the appellant company under 
s. 42(2) of the lndian Income-tax Act, 1922. It was contended 
for the appellant (r) that s. 42(2) imposed a charge only on a 
business carried on by a non-resident and that therefore no tax 
could be imposed on the business of the appellant, and (2) that 
it was a condition for the levy of a charge unde.r that sub-section 
that the non-resident must carry on business "'·ith the resident 
and that in the instant case it was not satisfied, as all that the 
non-resident companies did was only to get their ships repaired 
by the appellant company: 
• 
Held, ~I) that the business which is the subject-matter of 
• 
taxation under s. 42(2) of the Indian Income-tax Act, 1922, is 
that of the resident and not of a non-resident. The expression 
S.O.R. 
SUPREME COURT REPORTS 
849 
" derived therefrom " in that sub-section refers to the business 
r958 
of the resident. 
Mazagaon 
Dock Ltd. 
v. 
(2) that a person can be said to carry on a business with 
another if the dealings between them form concerted and 
organised activities of a business character. 
The Commissioner 
Where, as in the instant case, the non-resident companies of Income-tax & 
got their ships repaired by the appellant, not as they might by Excess Profits Tax 
any other repairer but under a special agreement that repairs 
should be done by the appellant at cost, the non-resident com-
panies must be held to have carried on business with the appel-
lant within the meaning of s. 42(2) of the Act, even though the 
non-resident companies might have derived no profits from the 
dealings with the appellant. 
Narain Swadeshi Weaving Mills v. The Commissioner of Excess 
Profits Tax, [1955] 
l S.C.R. 952 and Commissioners of Inland 
Revenue v. Incorporated Council of Law Reporting, (1888) 3 Tax 
Cas. 105, .relied on. 
•, 
C1viL APPELLATE JURISDICTION: Civil Appeal No. 
381of1956. 
Appeal by special leave from the judgment and 
order dated February 24, 1955, of the Bombay High 
Court in Income-Tax Reference No. 52/X of 1954. 
N. A. Palkhival,a (with him, Jamshedji B. Kanga), 
S. N. Andley, J. B. Dadachanji, P. L. Vohra and 
Rameshwar Nath, for the appellant. 
H. N. Sanyal, Additional Solicitor-General of India, 
G. N. Joshi and R.H. Dhebar, for the respondent. 
1958. May 12. 
The Judgment of the Court was 
delivered by 
VENKATARAMA AIYAR J.-This is an appeal against 
the judgment of the High Court of Bombay in a 
reference under s. 66(1) of the Indian Income-tax Act, 
1922, hereinafter referred to as the Act. 
The appellant is a private limited company incorpo-
rated under the Indian Companies Act, and is carry-
ing on business as marine engineers and ship repairers. 
V enkatara

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