THE COMMISSIONER OF INCOME-TAX, MADRAS versus SRI MEENAKSHI MILLS LTD. & ORS.

Citation: [1967] 1 S.C.R. 934 · Decided: 25-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

THE COMMISSIONER OF Ii'ICOME-TAX, MADRAS 
A 
\'. 
SRI MEENAKSHI MILLS LTD. & ORS. 
October 25, 1966 
[J.C. SHAH, V. RA~ASWAMI AND V. BHARGAVA, JJ.) 
lndW.n Income-tax Act (II of 1922), s. 42-Scope--Finding of fact 
by Tribunol-lnterference by High Court, 
validity,~orporate entity, if 
c:ourt can lift veil-
The asscssee-companics .. carried on business in ~fadurai and each had 
a branch at Pudukottai, a fofmer native State. 
They held majorily (;hare 
in a Bank which, too, bad its head office at Madurai and branch at Pudu-
kottai. T, who wa; a shareholder of the Bank, was the moving figure in 
the asses.see-companies. 
The assessees borrowed moneys from the Madu-
rai head office of the Bank on the security of fixed deposits made by the 
asscssees' branches with the Pudukottai branch of th-o Bank. 
The loans 
were far in excess of the available profits at Pudukottai. The Income-tax 
Officer held that the borrowings in British India on the security of the fixed 
deposits made at Pudukottai amounted to constructive remittance of the 
profits by the bcancbes of the assessee-eompanies to their Head Office in 
India within the meaning oi s. 4 of the Income-tax Act, and this view the 
Appellate Assi•tant Commissioner upheld. 
The assessees appealed to the 
Tribunal which took note that the branch whether of the assessec of the 
Bank constituted only one unit, and the establishment of the branch of the 
Bank at Pudukottai was intended to help the financial operations of T in 
the concerns in which he was interested,. and the Pudukottai branch of the 
Bank had transmitted funds deposited by the 
assessees for enabling tho 
Madurai branch to advance loans 
at interest to the assessees and the 
transmission of the funds was made with the knowledge of assessees. The 
Tribunal held that the asses>ees were rightly assessed. In reference 
the 
High Court answered the question in favour of the assessees holding it 
was not established that there was any arrangement between the assessees 
and the Bank whether at Pudukottai or at Madurai for transference of 
moneys from Pudukottai branch to Madurai and the facts on record did 
not establish that there was any transfer of funds between Pudukottai and 
Madurai for the purpose of advancini moneys to the assessees, and the 
transactions represented ordinary banking transactions and 
there was no-
thing to show that the amounts placed in fixed deposits in the branch were 
intended to and were in fact transferred to he~d office for the purpose of 
lending them out to the depositor himself. In 
appeals by the Commis-
sioner, this Court, 
HELD : The appeals must be allowed : 
The High Court erred in law in interfering with the findings of the ap-
pellate Tribunal. In a reference the High Court must accept the findings 
of. fact reached by the appellate Tribunal a_nd it is for the party who ap-
plted for a reference to challenge those findings of fact first by an applica-
tion under s. 66(1). If the party failed to file an application, under s. 
B 
c 
D 
F 
G 
66( I) e~pressly r~ising the question about .the validity of the findings of 
fact, he ts not enut!ed to urge before the High Court that the findings are 
H 
vitiated for any reason. 
[938 H-939 BJ 
India Cements Ltd. v. Commissioner of 
Income-tax, 
'A1adras, 
60, 
I.T.R. 52, relied on. 
I 
A 
B 
c 
c.I.T. v. MEENAKSHI MILLS (Ramaswami, /.) 
935 
In the context of the facts as found by the Tribunal, the entire transac-
tions formed part of a basic -ar_~ang'ement or scheme. between the creditor 
and the debtor that the money should be brought into British India aft~r 
it was taken by the borrower outside the taxable territory. [940 B-C] 
Section 42 requires, in the first place, that money should have been lent 
at interest outside the taxable territory, in the second place, income, profits 
or gains should accrue or arise directly or indirectly from such money so 
lent at interest, and in the third place, that the money should be brought 
into the taxable territories in cash or in kind. 
If all these conditions are 
fulfilled, then the section Jays down that the interest shall be deemed to be 
interest accruing or arising within the taxable territories. [939 DJ 
The provision in s. 42 ( 1), which brings within tht scope of the charging 
section interest earned out of money lent outside, but brought into· British 
India, was not ultra vires the Indian Legislature on the ground that it was 
extra-territorial in operation. [939 Fl 
The sect

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