Commissioner of Income- Taw. Bank oj Chettinad.
Present: Soertsz A.C.J. and Rose J.COMMISSIONER OF INCOME TAX, Appellant, andBANK OF CHETTINAD, Respondent.
Case stated under section 74 of the Income TaxOrdinance, No. 84 (Inty.).
Income Tax—Non-resident Bank—Loan to Ceylon Branch—Claim for deduc-tion of interest—Income Tax Ordinance (Cap. 188), s. 90, Utile 1.
Where the Chettinad Bank 'which had its Head Office at Rangoonand a Branch at Colombo lent money to the Colombo Branch and thelatter olaimed that it should be allowed a deduction, in the assessmentof its Income Tax, of the amount of the interest on the loan, underRule 1 of section 90 of the Income Tax Ordinanoe—
Held, that it was for the assessee to establish affirmatively thatboth the Head Office and the Ceylon Branch carried on the businessof banking.
A Bank contemplated by the Rule is a Company or person carrying onas its or his principal business the accepting of deposits of money oncurrent account or otherwise, subject to withdrawal by cheque, draftor order.
ASE stated under the provisions of the Income Tax Ordinance
for the opinion of the Supreme Court upon the application of theCommissioner of Income Tax.
H. Baenayake, Acting Solicitor-General (with him T. S. Fernando,
C.), for the Commissioner of Income Tax, appellant.—This is acase stated under section 74 of the Income Tax Ordinance (Cap. 188).The assessee is a company registered in India. The Head Office is inRangoon, and there is a Branch Office in Ceylon which transacts business.The Ceylon Branch paid to the Head Office in Rangoon Rs. 53,226 asinterest on money advanced by the Head Office for the financial yearending March 31, 1940. This sum was credited in the books of theCeylon Branch as a payment to the Head Office by way of interest forthat year. The Bank claims that this sum should be allowed as adeduction under Rule 1 of the Rules made by the Board of Income Taxunder section 90 of the Income Tax Ordinance—vide Subsidiary Legis-lation, Vol. III., p. 212. This rule contemplates a Ceylon Branch of anon-resident banker. The Board of Review was wrong when it heldthat it was immaterial under Rule 1 whether the Ceylon Branch carriedon banking business or not so long as it performed some kind of business.The activities of the Bank of Chettinad were merely of a non-bankingnature. The word “ banker ” is defined in section 2 of the Income TaxOrdinance as “ any company or body of persons carrying on the businessof banking ”. As regards the meaning of the word “ banking ” seeHart’s Law of Banking 4 Ed., Vol. IV., p. 1. There is no evidence as
3. N. A 54270-55? <»/45)
ROSE J.—Commissioner of Income fax v. Bank of Chettinad.
to the nature of the activities carried on in Rangoon. There is nomaterial on which a finding could be made that the Bank of Chettinadwas either in Ceylon or in Rangoon carrying on banking business. Onthe evidence it is clear that the Bank of Chettinad merely carries on amoney-lending business. See, further, Stroud; Judicial Dictionary(Supplement) p. 101, and section 330 of the Companies Ordinance,No. 51 of1038. It is submitted, therefore, that the assessee is only a non-residenttrading Company and does not come within Rule 1.
V. Perera, K.C. (with him N. Nadarajah, K.C., and S. J. Kadir-gamer), for the assessee, respondent.—A wide interpretation should begiven to the word “ bank ” . The correct test is whether the Companyutilises for profit its own monies or the monies of others. It is sufficientif the Company carried on some banking business. It is not necessaryto show that it carried cm all the activities of a banker. Thus in order toconstitute a bank a Company need not deal with cheques. Discountingof bills would be sufficient to make its business a banking business. Thewords “ business of banking ” do not refer to a particular class or set ofactivities. In any event the question whether the Rangoon Office andthe Ceylon Branch satisfy the definition of a “ banker ” is a question offact. The findings of the Board of Review on this question of factshould not be interfered with—Currie v. Inland Revenue Commissioners 1.
H. Basnayake, in reply.—The Board of Review did not hold thatthe Ceylon Branch carried on a banking business. What was held wasthat the Ceylon Branch need not carry on a banking business to fallwithin Rule 1. A Bank may have various activities but mere moneylending does not constitute its business a banking business. On thequestion as to what are the essential characteristics of a bank, see Harton Banking, p. 1. The definition of a “ bank ” in the CompaniesOrdinance covers the legal conception of a “ bank ”
Cur. adv. wit.
January 17, 1946. Ross J.—
This is a case stated under section 74 of the Income Tax Ordinance(Chapter 188). The matter concerns the interpretation to be given toRule 1 (1) of the Rules made by the Board of Income Tax in accordancewith the provisions of section 90 of the Income Tax Ordinance.
The Bank of Chettinad, Limited, at the material time had its HeadOffice at Rangoon and a branch in Ceylon. In the course of carrying onits business in Ceylon the Ceylon Branch paid a sum of Rs. 53,226 to theHead Office in Rangoon by way of interest on money advanced by theHead Office during the financial year ending March 31, 1940. This sumwas credited in the books of the Ceylon Branch as a payment to the HeadOffice by way of interest for that year. The Bank claims that this sumshould be allowed as a deduction under Rule 1 of the Board of Income *
* (1921) 2 K. B. D. 332 at p. 339.
ROSS J.—Commissioner of Income Tax v. Bank of Chellinad.
Tax Rules in assessing the income tax payable by the Bank in respect ofthe year of assessment, April 1, 1940, to March 31, 1941. The assessordisallowed the Bank’s claim. There was no argument before us as to theactual figures involved, it being common ground that if the claim issustainable the amount of tax payable for the year in question should bereduced by Rs. 10,646*30.
The relevant definitions in Rule 1 (1) are as follows :—“ * Bank’ meansany non-resident banker within the meaning of these expressions asdefined in section 2 of the Income Tax Ordinance. ‘ Ceylon Branch ’means the business carried on in Ceylon by any such Bank ”, It wascontended before the Board of Review and held by them that providedthe Bank was able to establish that it was a non-resident bank in Rangoonwithin the meaning of the above definition, it was immaterial whetherthe Ceylon Branch carried on banking business or not, so long as itperformed some kind of commercial activity. This proposition, whiohin my opinion has only to be stated to show that it cannot be sustained,was not seriously argued before this Court by counsel for the Bank,counsel contenting himself with the proposition that while the Branchmust be shown to perform some banking functions it need notnecessarily ba shown to perform all the functions of a bank.
It is necessary therefore for the Bank to establish two matters, firstthat the Head Office in Rangoon carried on the business of banking inBurma and secondly that the Ceylon Office did likewise in Ceylon. Inorder to decide this question it is necessary to discover what the legislaturemeans by the words “ bank ” and “ banking ”. The definition of“ banker ” contained in section 2 of the Income Tax Ordinance carriedthe matter no further and reads as follows :—“ banker ” means anycompany or body of persons carrying on the business of banking.
Counsel for the Bank contends in the first place that a wide interpreta-tion should be given to the word “ bank ” and suggests that the true testas to whether an institution is a bank or not is whether it utilises forprofitits own moniesor the monies of other persons and refers to Volume IV.of the Supplement to Stroud’s Judicial Dictionary at page 51 wherereference is made to a statement by Fitz Gibbon L.J., that for the purposeof the Irish Act, 33 G. 2, c. 14, a “ Banker ” is one “ who trafficswith the money of others for the purpose of making profit ” even,apparently, though he issues no cheque boohs and does not honourdrafts on demand.
Whatever may be the position under the Irish Law, it seems to me thatthat is too wide a conception of a bank according to the law of Englandand Ceylon. It is to be noted that section 330 of the Companies Ordinance,No. 51 of 1938, gives the following definition : “ A ‘ banking company ’means a company which carries on as its principal business the acceptingof deposits of money on current account or otherwise, subject to with-rdawal by cheque, draft or order, notwithstanding that it engages inaddition to any one or more of the following forms of business ….”
ROSE J.—Commissioner of Income Tam i*. Sant of Cheuinad.
It is no doubt true, as Counsel for the Bank pointed out, that the Com-panies Ordinance was enacted in 1938 whereas the Income Tax Ordinancewas enacted some six years earlier. The learned Solicitor-Generalcontends, however, that section 330 of the Companies Ordinance merelycrystallized what was already the legal conception of a “ bank ” inCeylon which he says is substantially the same as that of English law.The relevant definition in Mr. Hart’s book on the law of Banking atpage 1 reads as follows :— “ A Banker or Bank is a personor company carrying on the business of receiving monies, and collectingdrafts, for customers subject to the obligation of honouring chequesdrawn upon them from time to time by the customers to the extent ofthe amounts available on their current accounts ”. It is also perhapshelpful to turn to a layman’s view of the matter to be found in an EnglishDictionary of wide currency and acceptance, the Concise Oxford Diction-ary, whioh defines a “ bank ” as an “ establishment for custody of money,which it pays out on customer’s order ”.
I am of opinion that the contention of the learned Solicitor-Generalis correct and that the test to be applied is that stated, so far as companiesare concerned, in section 330 of the Companies Ordinance, and thereforea banker means a company or person carrying on as its or his principalbusiness the accepting of deposits of money on current account orotherwise, subject to withdrawal by cheque, draft or order.
Now, whether the Head Office of the Chettinad Bank in Rangoon andits branch in Ceylon satisfy this test is no doubt, in part at least, a questionof fact and Mr. H. V. Perera, Counsel for the Bank, contends that theBoard of Review have come to findings with which it would be wrongfor us to interfere as our functions are limited in these matters to questionsof law. He referred to a passage in the judgment of Scrutton L.J., inCurrie v. Inland Revenue Commissioners *, in which after quoting thefollowing words from a judgment of Lord Parker “ It may not alwaysbe easy to distinguish between questions of fact and questions of lawfor the purpose of the Taxes Management Act, 1880, or similar provisionsin other Acts of Parliament. The views from time to time expressedin this House have been far from unanimous” Scrutton L.J. goes on tosay, “ I think the reason is, as has been suggested by the Master of theRolls, that there has been a very strong tendency, arising from theinfirmities of human nature, in a judge to say, if he agrees with thedecision of the Commissioners, that the question is one of fact, and if hedisagrees with them that it is one of law, in order that he may expressbis own opinion the opposite way ”.
While giving full weight to this wise and witty pronouncement which,in my opinion, might well be taken to heart by Appellate Courts in matterscoming before them even otherwise than by case stated, I considernevertheless that the question as to whether by the evidence adducedbefore the Board the Chettinad Bank and its Branch can reasonably be 1
1 (1921) 2 K. B. D. at p. 339.
ROSE J.—Commissioner qf Income Tax v. Bank oj Chcuinad.
held to have satisfied the test to which I have referred is a matter of law,or at least of mixed fact and law, to which it is proper that this Courtshould apply its mind.
It must be borne in mind that it is for the person claiming relief toestablish affirmatively that he is a “ bank ” within the meaning of theRule. As regards the Ceylon Branch, as is pointed out in the case stated,it was not disputed at the hearing before the Commissioner that it hadbeen mainly carrying on the business of lending money on promissorynotes or on mortgage of property in Ceylon and the management ofestates and house property owned by the bank in Ceylon. Furtherno cheque books had been issued by the Branch and there was no evidencebefore the Commissioner that any monies on deposit in any shape or formcould have been withdrawn by cheque, draft or order ; or a fortiori thatany such monies were in feet so withdrawn. The only exhibit producedwhich can be said to have any bearing on the matter, exhibit A3, showsthat at the material time the only current and deposit accounts with theBranch were those of the Chettinad Corporation, Limited, and seven otherpersons, which seven were shown to have closed their accounts during thefinancial year ending March 31, 1940. Thus, as is pointed out in thecase stated, the only current and deposit accounts at that date werethose of the Chettinad Corporation, Limited, which at that time showeda debit balance.
It seems to me, with all respect to the Board of Review, that it isimpossible on this material to say that it can reasonably be held that theBank jhas shown that the Ceylon Branch has satisfied the test as set outabove. The Bank having therefore failed to show that the CeylonBranch was carrying on the business of banking it becomes unnecessaryto consider whether the Head Office of the Chettinad Bank in Rangoonwas doing so. I will therefore express no opinion on that matter butwould merely observe that in a letter dated August 4, 1939, addressedto the Registrar of Companies, Colombo, the Proctor of the ChettinadBank, Limited, stated as follows :—“ I am instructed by the Bank ofChettinad, Limited, to inform you that the principal business of myclients is not the accepting of deposits of monies on current account orotherwise subject to withdrawal by cheque, draft or order. In thesecircumstances my clients are not a Banking Company as defined by theOrdinance and I have to point out that their name has been incorrectlyentered in the 7th Schedule to the above Ordinance. In this connection,
I should like to add 'that a similar application was made by the HeadOffice in Burma and my client’s contention that they were not a BankingCompany was accepted by the Registrar of Joint Companies, Rangoon*and the Controller of Gurrenoy, Calcutta ”, In the light of this statementof the position made by the Chettinad Bank’s Proctor, it would seemif it was necessary for the point to be decided, that the Chettinad Bankmight well experience difficulty in establishing that their Head Office inRangoon was carrying on a banking business in the sense attributed tothat term in Ceylon.
1*1. N. A 54276 (9/45)
SOERTSZ A.C.J.—Hendrick v. Gimarahamine.
For these reasons I am of opinion that the Chettinad Bank, liiinited,is not entitled to the relief it claims. It must pay the costs of theproceedings in this Court, before the Board of Review and before theCommissioner.
Sobrtsz A.C.J.—I agree.
COMMISSIONER OF INCOME TAX , Appellant, and BANK OF CHETTINAD , Respondent