Wallace Brothers & Co., Ltd. v. CIT, Bombay City & Bombay Suburban District

Quick Summary

A UK company earned large income from Bombay. The tax department taxed it in India. The company said, “We are foreign—no Indian tax.”

The Privy Council said India can tax if there is a strong territorial nexus. Here, most income came from British India. So, tax was valid.

Issues

• Foreign Company Tax Can a foreign company be taxed under Indian law?
• Statutory Validity Are Sections 3, 4, 4A, 64 of the 1922 Act valid for taxing income earned outside British India?
• Jurisdiction Did the assessing officer have the authority to make this assessment?

Rules

Under British and Indian practice, if there is a sufficient territorial connection between the taxpayer and the taxing country, that country may tax even foreign income.

This idea fits within “taxes on income” under the Government of India Act, 1935. The 1922 Income-tax Act provisions (ss. 3, 4, 4A, 64) operate within this power.

Arguments

Judgment

Held: Tax is valid. The Privy Council recognized the Doctrine of Territorial Nexus. Because a major part of the company’s income arose from British India, the link was strong.

Therefore, the statutory scheme as applied here was within power, and assessment by the officer stood.

Ratio

If there is a real and sufficient connection with India, tax can reach foreign income. The 1922 Act provisions operate validly when this nexus exists.

Why It Matters

• Sets the foundation for taxing cross-border income tied to India.
• Clarifies the reach of Income-tax Act, 1922 in pre-Constitution era.
• Guides modern views on source-based taxation and nexus.

Key Takeaways

• Territorial nexus can justify tax on foreign income.
• Sections 3, 4, 4A, 64 worked validly in this case.
• Foreign incorporation does not immunize income from Indian tax if ties are strong.
• Officer’s jurisdiction sustained due to the nexus and statute.

Mnemonic + 3-Step Hook

Mnemonic: “WALL-LINK-TAX” — WALLace is foreign, LINK to India is strong, so TAX applies.

1. Find Link: Big income stream from India.
2. Fit Law: Ss. 3, 4, 4A, 64 enable charge.
3. Final Tax: Nexus → assessment valid.

IRAC Outline

Glossary

Territorial Nexus

A real link between income, source, or activity and India that can justify taxation.

Section 4A (1922)

Tests for residence; helps decide when foreign entities fall within charge.

Jurisdiction

Legal power of a specific officer to assess tax in a case.

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