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TMI Blog1944 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1939 into the income-tax law of India. It was contended on behalf of the Government (i) that the suit was not maintainable, and (ii) that the impugned provisions of the Income-tax Act were intra vires the Indian Legislature. The plaintiff-the Raleigh Investment Co., Ltd.-is a joint-stock company incorporated under the English Companies Act, having its registered office at 13, Athol Street, Douglas, in the Isle of Man, and its in office at Egham, Surrey, England. It has no business premises in India, but holds the bulk of the shares in eleven companies which carry on the business of manufacturing and selling tobacco and cigarettes in India. Two of these companies, referred to in the judgments of the High Court as "rupee companies", are incorported in India under the Indian Companies Act and have their registered office and business head-quarters at Calcutta. The nine remaining companies, referred to as the "sterling companies", are companies registered under the English Companies Act. They are controlled in London, where the Boards of Directors sit, the shares registers are situate and dividends are declared. The Boards in London have constituted Boards which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to a proportionate deduction of income-tax with reference to the amount of income-tax paid by the company. But as the basis of the levy of super-tax on the company, is, as stated above, different from the basis of the levy of super-tax on individuals, no such deduction as is contained in Section 49B is provided for in respect of super- tax payable on dividends received from companies. Where the recipient of the dividend was resident outside British India, it was held by the Bombay High Court in 1931 in Commissioner of Income-tax v. Goldie [1931] I.L.R. 55 Bom. 734., that dividends received by him outside British India from companies doing business in British India but registered in the United Kingdom and having their share register there could not be assessed to income-tax in British India, under the Indian Income-tax Act, as it then stood. To meet this situation, certain amendments were inserted in the Act in 1939 and these are the provisions now impugned. It having been enacted by Section 3 that the tax shall be charged in respect of "the total income" of the previous year, Section 4 proceeds to define "the total income". In respect of income not " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relief. The Government filed a written statement, objecting to the maintainability of the suit and insisting that the assessment was valid. On both points, the High Court overruled the defendant's contentions, on the first point, by a majority and on the second point, unanimously. There were other plea raised, but it is unnecessary to refer to them here, as they have not been argued before this Court. The only objection to the maintainability of the suit urged before us was based on Section 226 of the Constitution Act, which runs as follows:- "Until otherwise provided by Act of the appropriate legislature, no High Court shall have any original jurisdiction in any matter concerning the revenue, or concerning any act ordered or done in the collection thereof according to the usage and practice of the country or the law for the time being in force." It was contended on behalf of the Government that the present suit fell within the description "matter concerning the revenue" in the above provision. Lodge, J., was of the opinion that this objection should prevail; but the Chief Justice and Mitter, J., held that a matter could be held to concern revenue only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural meaning of the words employed. A plea under Section 226 is in the nature of a demurrer and it seems to us anomalous to hold that the decision of such a plea should be postponed till after, and be made, to depend upon, the decision of the case on the merits. The learned Judges say that where the law imposing the revenue is itself illegal, a dispute in relation to it cannot be said to concern the "revenue." This argument, if pursued to its logical limits, will prove too much. If even under a valid revenue law a person who is not liable to be assessed is sought to be assessed to revenue, that claim may well be des- cribed as an "illegal" claim against him. Again, there may be a dispute between a taxpayer and the revenue authorities as to whether the tax- payer has or has not paid what was due from him and if on investigation it should be found that he had paid what was claimed as still due, the claim as against him for further payment might well be described as "illegal." If in such cases the Court should be called upon to decide whe- ther the claim was well founded in law before applying the bar under Sec- tion 226, the provision would be practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing for decision. It turned on the special nature of the relief claimed in that proceeding and there is certainly nothing in that judgment to qualify the principle laid down by their Lordships in Spooner v. Juddow [1845-51] 4 M.I.A. 358. In the only reported case where the application of Section 226 had to be con- sidered on an allegation that the revenue law itself was illegal, a Special Bench of the Bombay High Court held that "before the section can apply, we must determine that the tax which is challenged is legal." [See Sir B. Jeejibhoy v. The Province of Bombay [1940] I.L.R. 1940 Bom. 58.]. There is no discussion of the question in that judgment, apparently because the point "was not seriously contested by the Advocate-General" in that case. The authority of that pronouncement does not in any event carry us further that the considered judgment of the Calcutta High Court in the present case. Mitter, J., refers to the analogy of cases where a Court has power to determine what are called jurisdictional facts, if the jurisdiction of the Court depends on the existence of certain facts. In such cases, the jurisdictional or exclusionary provisions will ordinaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed upon the words in Explanation 3 to Section 4(1) limiting the assessability of a dividend paid without British India "to the extent to which it has been paid out of profits subjected to income-tax in British India." It was contended that the legislature had thus attempted to tax only such income as had its source in British India and that this was clearly within the territorial jurisdiction of the British Indian Legislature. Our attention was drawn to the observations of Lord Herschell in Colquhoun v. Brooks [1889] 14 App. Cas. 493 at p. 504., where the existence within any particular country of "that from which the taxable income is derived" is spoken of as a "territorial limitation" quite as much as the residence there of the person whose income is to be taxed. Strong reliance was also placed on certain decisions of the High Court of Australia, where, dealing with provisions similar to the impugned provisions of the Indian Act or provisions of even wider import, the High Court of Australia has held that they were not invalid on the ground of extra-territorial operation On behalf of the respondent, it was contended that in a case like the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of business being in some respects similar to the condition obtaining in this country, the provisions of the income-tax law also bear some resemblance to the provisions with which we are concerned here. Two of the Australian decisions, Nathan v. Federal Commissioner of Taxation [1918] 25 Com. L.R. 183 and Murray v. Federal Commissioner of Taxation [1921] 29 Com. L.R. 134., are practically on all fours with the present case. In both the cases, the Court was confronted with the very argument that has been advanced on behalf of the plaintiff here, namely, that though the source of the company's income was Australian, that of the share-holders was not, because, in the words of Fletcher Moulton, L.J., in Gramophone and Typewriter, Ltd. v. Stanley(1), the share-holder did not carry on the business of the company, but was only entitled to the profits of the business to a certain extent fixed and ascertained in a certain way dependent on the constitution of the corporation.This argument was overruled by all the learned Judges. In Nathan's case [1918] 25 Com. L.R. 183, Isaacs, J., delivering the judgment of the Court, observed that the question as to the source of the share- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax upon all its profits." With these we may take the remarks of Viscount Cave in Swedish Central Ry. Co. v. Thompson [1925] A.C. 495 at p. 504 where, referring to Bradbury's case [1923] A.C. 744 the Lord Chancellor said: "The Crown, having established in Joyce's case [1913] 6 Tax Cas. 1, 163. that profits of the company during the period in question were for the purpose of taxing the company to be treated as earned here, could not now be heard to say that for the purpose of taxing the share-holders they were earned aboard. The source of income was the same in both cases." (The italics are ours). Here, the Lord Chancellor clearly treats the income of the company and the dividend income of the shareholders as derived from the same "source". In Scottish Union & National Insurance Co. v. New Zealand & Australian Land Co. [1921] 1 A.C. at p. 178., Viscount Haldane, dealing with a Scottish company doing business in Australia and New Zealand, says "what remained as net balance was remitted to Scotland to be divided as profit" and in the same case (on p. 182) Viscount Finlay states: "If this colonial tax had not existed, so much more wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a right to the company to deduct the amount thus paid from the amount payable to the creditor or debenture-holder. In Wanganui-Rangitikie Electric Power Board v. Australian Mutual Provident Society [1934] 50 Com L.R. 581 at p. 600, Dixon, J., said: "So long as the statute selected some fact or circumstance which provided some relation or connection with New South Wales and adopted that as the ground of it interference, the validity of an enactment would not be open to challenge." The question was more fully discussed in the Broken Hill South case [1937] 56 Com. L.R. 337. Latham, C.J., recognised that the case was perhaps an extreme one. It is sufficient for our present purpose to take the principles accepted by Rich, J., in his dissenting judgment. The learned Judge observed (on p. 361): "I do not deny that one any connection with New South Wales appears, the legislature of that State may make that connection the occasion or subject of the imposition of a liability. But, he added, "the connection with New South Wales must be a real one and the liability sought to be imposed must be pertinent to that connection." On the facts of the particular case, he dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a long course of authority, be held to be English. This may be material in respect of any attempt to levy a tax like estate duty or legal duty on the corpus of the shares. [cf. Black wood v. The Queen [1882] 8 App. Cas. 82, Brassard v. Smith [1925] A.C. 371 , Provincial Treasurer of Alberta v. Kerr [1937] A.C. 710 and Commissioner of Stamp Duties (N.S.W.) v. Millar [1932] 48 Com. L.R. 618. But when the attempt is to tax income and not the corpus and the question to be considered is the source of that "income", it seems to us legitimate to take into account the place where the business from which the income is derived is in fact carried on and not to treat the situs of the shares in the eye of the law as concluding the matter. In London and South American Investment Trust v. British Tobacco Co. (Australia) [1927] 1 Ch. 107, the learned Judge had to deal with a very limited question, namely, the effect which a provision in an Australian enactment could have on the rights and liabilities of parties in respect of a debut arising under an English contract. On this point, the learned Judge said: "If the debt arises under an English contract and is an English debt, I do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endantcompany paid the amount and deducted it from the dividend payable to the plaintiff for the next year. The plaintiff-company claimed that it was entitled to payment of the full amount of the dividend without this deduction and contended that the Australian Legislature had no power to assess it to income-tax in respect of the dividends; it further said, "whether the legislation is ultra vires or not, as between itself and the defendant-company, the contract which regulates their relations is an English contract and the dividend payable to it by the defendant-company is a debt recoverable and locally situate in England and that it is no answer to the claim for the dividend that the defendant-company has been compelled by Australian law to make certain payments to the Federal Government of Australia." Dealing with the powers of the Australian Legislature, the learned Judge said that its powers of taxation "do not extend to authorize the imposition of taxation upon a person who is not resident or domiciled within the Commonwealth, in respect of property which is not situate within the Commonwealth." (The italics are ours). To the proposition thus stated, no exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a state can furnish no argument in the Courts of that country for holding that statute to be pro tanto invalid. Arguments as to the territorial limits of legislative jurisdiction and to the accepted rules of international law in this behalf will be relevant only as furnishing a presumption or rule of construction against an intention to exceed the territorial jurisdiction or to violate the rules of international law, if and when the language of the statue is general. Where however the meaning and intent are plain, the presumption or rule of construction must give way. Even in the case of enactments passed by a non sovereign legislature, the rule of presumption or construction is equally relevant, where the language of the legislative is general. But where the language is plainly extra-territorial in it operation, the question becomes one as to the authority of the legislature and the validity of the law. Ashbury v. Ellis [1895] A.C. 339 establishes that even in the case of a non-sovereign legislature, nothing turns on the question whether or not the Courts of another country will give effect to a law passed by that legislature or to decisions given under that law. So far as rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject was full of obscurity and there was conflict in legal opinion as expressed in the courts and in the writings of jurists both as to the existence of the limitation itself and as to its extent. These doubts and difficulties were set at rest by Section 3 of the Statute of Westminster, 1931. The matter was considered independently of this statute in Croft v. Dunphy [1933] A.C. 156. Their Lordships' judgment in this case emphasised the doctrine laid down as early as The Queen v. Burah [1878] 3 App. Cas. 889 and Hodge v. The Queen [1883] 9 App. Cas. 117., namely, "once it is found that a particular topic of legislation is among those upon which the Dominion Parliament may competently legislate as being for the peace, order and good government of Canada or as being one of the subjects enumerated in Section 91 of the British North America Act, their Lordships see no reason to restrict the permitted scope of such legislation by any other consideration than is application to the legislation of a fully sovereign State." In British Coal Corporation v. The King [1935] A.C. 500 reference was again made to Hodge v. The Queen [1883] 9 App. Cas. 117. and it was added: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and they accordingly limit this power to the five cases specified in that sub-section. This seems to us, with all respect, to be a misreading of the section. Unlike clauses (b) and (c) of Section 65 of the Government of India Act of 1915, sub-section (2) of Section 99 is worded not as a provision "conferring power of make laws", but as a provision which assumes that the preceding sub-section is capable of being read as including the power to make laws even in respect of the matters specified in the five cases dealt with in sub-section (2), namely, "without prejudice to the generality of the powers conferred by the preceding sub-section" and also by the tenor of the sub-section which only purports to obviate objection on the ground of extra-territorial operation. If it should be asked what necessity there was, in this view, for specifying particular cases in that sub-section, the answer would be that it was probably though that the simple omission of the corresponding provisions found in the Act of 1915 might lead to the impression that the power to deal with those matters had been taken away from the Federal Legislature. Even the language of Section 99(1) in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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