1960 (8) TMI 85 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Appellate Tribunal was right in treating the petitioner, Vinayagam, as the agent of the non-resident principal, Subramaniam.
2. Whether the determination of the income of the non-resident principal at Rs. 33,396 under section 23(4) is correct in law.

Issue-wise Detailed Analysis:

1. Agency Relationship under Section 43:
The primary issue was whether Vinayagam could be treated as the agent of Subramaniam under Section 43 of the Income-tax Act. The Tribunal confirmed that Vinayagam was the agent of Subramaniam based on the material in the remand report, which included correspondence between the two parties. The court noted that Vinayagam had admitted handling goods worth Rs. 2,37,195 imported by Subramaniam and claimed to have purchased them. This claim was accepted in Vinayagam's income assessment, applying Section 42(2). The court emphasized that the volume of Subramaniam's business handled by Vinayagam was irrelevant to this specific question. The court affirmed the Tribunal's finding, stating that there was sufficient material to sustain the finding that Vinayagam was Subramaniam's agent.

2. Determination of Non-Resident Principal's Income:
The second issue was whether the income of the non-resident principal, Subramaniam, was correctly determined at Rs. 33,396 under Section 23(4). The court examined the Tribunal's findings, which included that Subramaniam imported goods through various means and sold some through his employees. Vinayagam handled goods worth Rs. 2,37,195, claimed to have purchased them, and this claim was never negated. The court held that Vinayagam could not be taxed twice on the profits from these goods-once under Section 42(2) and again under Section 42(1). The court clarified that Sections 42(1) and 42(2) are mutually exclusive. The profits from the sales of these goods were Vinayagam's income, not Subramaniam's, and thus could not be taxed under Section 42(1).

The court further elaborated that Vinayagam was not liable to be taxed on the profits of the sales of other goods imported by Subramaniam, as there was no evidence that Vinayagam handled these sales. The court referenced the principle from Ramnarayan Rajmal v. Commissioner of Income-tax, which states that an agent can only be taxed on income accruing through dealings with him. The court concluded that Vinayagam was not liable to be taxed on any portion of the estimated income of Rs. 50,000 of Subramaniam under Section 42(1).

Conclusion:
The court answered the first question in the affirmative, confirming that Vinayagam was the agent of Subramaniam. However, it answered the second question in the negative, holding that Vinayagam was not liable to be taxed on the income of Rs. 33,396 under Section 42(1). Consequently, the court ruled in favor of the assessee, Vinayagam, and awarded costs of Rs. 250 for the reference.