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TMI Blog1950 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... Egypt. They consign this salt to Messrs. Turner Morrison Company Limited for sale at the best price obtainable at or above the prices approved of by the Port Said Association Limited. The shipping operations, i.e., chartering, loading, insurance etc., are effected by the Association in Egypt who send the shipping documents to Messrs. Turner Morrison Company Limited ; all handling of cargoes on arrival at Calcutta are made by Messrs. Turner Morrison Company Limited who make the necessary disbursements in connection therewith. The sales are effected by Turner Morrison Company Limited through the medium of brokers and the sale proceeds are collected by the aforesaid company and deposited in their bank, the Hongkong and Shanghai Banking Corporation in their name and account. Messrs. Turner Morrison Company Limited are paid 2 % commission on all sales except in some cases where they are paid 1 %. After deducting that commission and disbursement expenses they remit the balance to the Port Said Association in Egypt. Unsold salt is kept in salt golahs at the risk and expense of the Port Said Association. Messrs. Turner Morrison Company sell this salt at the best possible price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the merchanting profits and not on the manufacturing profits which accrued by reason of the acts done by the assessee company in Egypt in manufacturing and processing the salt and in making it ready for export and putting it on board for export. These manufacturing profits should be excluded and tax should be levied only on the merchanting profits which are the only profits which can be said to be attributable to the operations carried out in India. It was also argued that the very fact of the Income-tax authorities appointing Turner Morrison Company Limited as statutory agents recognised that the case fell within Section 42 and that therefore the operation of Section 42(3) was attracted. 6. These contentions failed before the Income-tax authorities and the Income-tax Appellate Tribunal has upheld the decision taken by the Income-tax Department. Messrs. Turner Morrison Company Limited as agent of the assessee company then applied to the Tribunal under Section 66(1) of the Income-tax Act to refer certain questions of law which arose out of the Appellate Tribunal's order to this Court. The Tribunal has drawn up a statement of the case and referred 3 questions of law t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rison Company received the proceeds on their own behalf and put them into their own bank in their own name. It was also pointed out by him that the purchasers had nothing to do with the assessee company nor had the assessee company any dealings with the purchasers. The sales were direct transactions between Turner Morrison Company Limited and the purchasers. I am quite unable to accept this view. Upon their own statement of their case, the salt was consigned to them for sale at or above a minimum price fixed by the assessee company. Turner Morrison Company Limited never purchased the salt themselves. They sold it and deducted a commission for themselves at the rate of 1 and 2 according to the particular circumstances under which the sales were held. They stated that salt not sold was kept in salt golahs at the risk and expense of the assessee company. Obviously therefore Messrs. Turner Morrison Company were selling the salt on behalf of the assessee company and were receiving the sale proceeds in India on behalf of that company. I find it impossible to come to any other conclusion on their own statements contained in the enclosures attached to their applications for these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their goods by the shipping company and collected the freights which they made over to the shipping company after deducting their commission. Income-tax was levied on the freights collected by them. It was contended on behalf of the assessees that these persons were not agents and secondly that although they received freights they were not in receipt of profits ; we are concerned now with the second point. Rowlatt, J., held that in receiving the freights from the shippers they were receiving profits. This is what he says :- Now were they in receipt of the profits ? I have said that Lord Herschell put it that, if they were in receipt of the moneys out of which the profits came, that was enough. Lord Davey, I think, said the same. Now here they collect the freights. It is said that they do not really collect freights, but that in many cases they are the consignors upon the bill of lading, and therefore they are paying freights as principals, receiving them in turn as principals from the real shippers. I do not think there is any substance in that at all. If they did in any case, or in all the cases, sign the bill of lading as consignors, I do not think there is any significance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and who received the gross proceeds (in which the net proceeds are included) were agents in whose name the trader could be assessed. I rely on the words in brackets for the view that gross receipts include net income or profits. 15. This case related to the interpretation of Sections 41 and 44 of the Income Tax Acts of 1842 of England. I am aware of the danger of relying on English decisions on English statutes in interpreting Indian statutes unless similar words or phrases occur in both statutes. I have seen the words of the English statutes and am of opinion that the English decision as to what is meant by the receipt of profits or gains by an agent, partner or receiver (here I am quoting the words of Section 41 of the English statutes) would apply in interpreting the Indian Act. 16. Messrs. Turner Morrison Company Limited are admittedly statutory agents for the non-resident assessee company having been so appointed under Section 43 of the Income-tax Act and by virtue of that section they are deemed to be agents for all the purposes of the Act. The gross receipts received by them include total income within the meaning of Section 4 of the Income-tax Act and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case I have found that the income, profits or gains were received in India on behalf of the assessee company and that they fall within the ambit of Section 4(1)(a). That being so, there is no necessity for the Income-tax authorities when levying income-tax to rely on Section 42 of the Income-tax Act which does not deal with income, profits or gains received in India but only with income, profits or gains deemed to accrue or arise in India. The assessee company cannot therefore invoke the aid of Section 42(3) and insist, so far as income-tax is concerned, that the tax is leviable only on such income, profits or gains as are attributable to that part of the operations as are carried out in India. It is hardly necessary to point out that the application of the provisions of subsection (3) of Section 42 is restricted to cases in which the provisions of sub-section (1) of Section 42 are relied upon by the Income-tax authorities for levying income-tax. 19. Section 4(1)(b ) and Section 4(1)(c) of the Income-tax Act, would, however, have to be relied on in the case of the levy of excess profits tax, as income, gains and profits coming within the definition of Section 4(1)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved in the levying of income-tax on such agent. Messrs. Turner Morrison Company Limited are admittedly the statutory agents of the assessee company. Income-tax may therefore be levied on them as agents as they are in receipt of income, profits and gains on behalf of the non-resident company without invoking the provisions of Section 42. It cannot therefore be argued that Section 42(43) of the Income-tax Act applies to this case merely because tax is being levied on Messrs. Turner Morrison Company as statutory agents. It is not at all necessary for me to consider whether Messrs. Turner Morrison Company Limited are agents of the assessee company under the Contract Act, Sale of Goods or any other Act. They are statutory agents under Section 43 of the Income-tax Act and that is sufficient to make them liable to assessment with the aid of Section 40. Mr. Mitra's argument that a statutory agent can be assessed to income-tax only with the aid of Section 42 and under no other section is untenable in view of the clear provisions of Sections 40 and 43 of the Income-tax Act. In my view the provisions of Section 42 are in no way attracted. It seems that Mr. Mitra has not taken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory agents under Section 43 of the Income-tax Act as being a person in receipt of income on behalf of the non-resident Port Said Salt Association Limited. Messrs. Turner Morrison Company Limited, therefore must be deemed to be an agent for all purposes under the Act and thus they become liable to assessment as an agent of the Port Said Salt Association Limited under Section 40 of the Act. I may say, in the words of their Lordships in the Bombay case, that Section 43 is really only machinery for giving effect to Section 40. I hold therefore that the fact that the Income-tax Officer appointed Turner Morrison Company Limited statutory agents does not attract the provisions of Section 42 (3) of the Income-tax Act so far as the levy of income-tax is concerned and no deduction, allowance or restriction as is envisaged in Section 42(3) need be made so far as the levy of income-tax is concerned. 22. Having regard to the views expressed above I hold that the Income-tax Officer was right in assessing Messrs. Turner Morrison Co. Ltd., with income-tax as statutory agents of the assessee company on the footing that they had received total income on behalf of the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasonably attributable to that part of the operation carried out in India by reason of the provisions of Section 42 (3) of the Income-tax Act. For this purpose reliance was placed by the Tribunal on the case of In the matter of Mohanpura Tea Company Ltd. [1937] 5 ITR 118 ; ILR [1937] 2 Cal 201. Dr. Pal on behalf of the Income-tax Officer supported this view. He says that Section 42 applied only to those cases where income, profits and gains accrued or arose outside India as a result of a business connection in India. In such a case, he argued, by reason of Section 42 the income, profits and gains though not actually arising or accruing in India shall be deemed to arise or accrue in India. In the present case he says the income, profits and gains actually accrued or arose in India and therefore Section 42(3) could not apply. He relied also on the case of Hira Mills Ltd., Cawnpore v. Income-tax Officer, Cawnpore [1946] 14 ITR 417 , which was decided by the Allahabad High Court, the case of Burugu Nagayya and Rajanna v. Commissioner of Income-tax, Madras [1949] 17 ITR 194, decided by the Madras High Court and the case of Commissioner of Income-tax, Madras v. Anamallais Timber Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. 27. I find however on reference to Section 21 of the Excess Profits Tax Act that the provisions of Section 42 of the Income-tax Act shall apply as if they were provisions of the Excess Profits Tax Act and although the aid of Section 21 of the Excess Profits Tax Act was not invoked by Mr. Mitra, I find no difficulty or bar in the way of applying it as the contention of the assessee company was that Section 42 applied to the levy of excess profits tax and that question has been referred to this Court, the reference being in relation to cases under the Income-tax Act as well as those under the Excess Profits Tax Act. If therefore the assessee company can show that the income taxed under the Excess Profits Tax Act is income which is deemed to arise or accrue in India within the meaning of Section 42(1) of the Income-tax Act and that all the operations of the business through which the income arose were not carried out in India then, in my opinion, the assessee company would be entitled to the benefit of Section 42(3) of the Income-tax Act and could claim profits or gains as are reasonably attributable to that part of the operations as were carried out in India. 28. I now proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The case of Mohanpura Tea Company Ltd. [1937] 5 ITR 118; ILR [1937] 2 Cal. 201, relied upon by the Income-tax authorities is in my opinion of no assistance to the Income-tax authorities. The Income-tax Act has been greatly amended since that decision. The decision was rested on sub-section (2) of Section 4 of the old Act which said : Income, profits and gains accruing or arising without India to a person resident in India shall, if they are received in or brought into British India be deemed to have accrued or arisen in British India. It was also rested on a proviso to sub-section (2) of Section 4 which said that the sub-section would not apply to income from agricultural produce arising or accruing in a State in India from land for which any annual payment in money or in kind is made in India. The provisions of the present Section 42 were not and could not be considered in that case. It would therefore be quite unsafe to base our decision in this case on the views expressed in the case referred to. In the case of Burugu Nagayya and Rajanna v. Commissioner of Income-tax, Madras [1949] 17 ITR 194 the decision was based on the fact that the assessee admitted that the income actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f salt. It accrued to the Port Said Association by reason of or through this connection with Turner Morrison Company's business in India. All the requirements of Section 42 are satisfied and therefore I must hold that the income shall be deemed to arise or accrue in India. Further as the income accrued to a person not resident in India, tax could be levied in the name of the agent of such non-resident. That agent is Messrs. Turner Morrison Co., Ltd., who were appointed statutory agents under Section 43 of the Income-tax Act. 32. I am fortified in my view by the decisions of the judicial Committee, viz., Commissioner of Income-tax Bombay Presidency v. Bombay Trust Corporation Ltd. [1930] 57 IA 49, and Commissioner of Income-tax v. Remington Typewriter Company, (Bombay) Ltd. [1931] 58 IA 42 33. In the case of Commissioner of Income-tax, Bombay Presidency v. Bombay Trust Corporation Ltd. [1930] 57 IA 49 the facts were briefly these. A company, the Hong Kong Trust Corporation was incorporated in Hong Kong ; the company advanced money to the Bombay Trust Corporation incorporated in India and received interest at 5 % from the Bombay Co. In these circumstances it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts tax, however, cannot be levied on this basis. Question (2).-The Tribunal was wrong in accepting the contention of the department that the income accrued or arose in India. The Tribunal did not hold that the income is income which should be deemed to accrue or arise in India. The part of the question which states that the Tribunal did so is not in accordance with fact. We find that the income, profits and gains must be deemed to have arisen or accrued in India so far as excess profits tax is concerned and that Section 42(3) of the Income-tax Act applies to the levy of excess profits tax by virtue of Section 21 of the Excess Profits Tax Act. Questions (3). - The Tribunal was right in rejecting the contention that the income, profits and gains are chargeable to tax under Section 42 only. 37. They are also chargeable to income-tax as falling within the purview of Section 4(1)(a) of the Income-tax Act as income received in India on behalf of the assessee company. In such a case Section 42 of the Income-tax Act would have no application. As both parties have partially succeeded they shall bear their own costs of this reference. 38. Mr. Mitra brought to our notice a recent decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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