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TMI Blog1924 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid on the 29th March, 1923, with a notice that they shall in all probability appeal against the assessment. On the 27th June, 1923, they made an appeal to the Assistant Commissioner of Income Tax against the assessment, and for refund of the amounts paid for Income Tax and super-tax respectively for the year 1921-1922. A similar petition was made with regard to the assessment for the next year. The Commissioner of Income Tax on the 13th October, 1923, however, confirmed the assessments. Thereafter the Commissioner of Income Tax at the instance of the Company made a reference under Section 66 of Act XI of 1922, and Section 51 of Act VII of 1918, as stated above. 5. The reference was made under Act VII of 1918, as well as under Act XI of 1922, the reason being that the Income Tax for 1921-22 was assessed and levied under Act VII of 1918, and that for 1922-23 under the new Act XI of 1922. The provisions of the two Acts are generally speaking, similar with certain exceptions. 6. Section 3 (1) of Act VII of 1918 lays down: Save as hereinafter provided, this Act shall apply to all income from whatever source it is derived if it accrues or arises, or is received in Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the tax is to be levied in the case of a non-resident person, and providing that in such a case his agent is to be deemed to be the assessee in respect of the Income Tax. 10. Now, Sections 3 and 5 of the Act appear in Chap. I, which is headed taxable income. Section 5 as stated above enumerates the classes of income chargeable to Income Tax the (IV) class being income derived from business. Chap, IV of the Act headed Liability in special cases' contains a group of sections which provide that in the case of minors, lunatics, etc., or persons whose properties are managed by others such as the Court of Wards, Administrator-General, etc. the Income Tax would be levied and recoverable from the guardian, trustee, the Court of Wards, etc., as the case may be. There is no doubt that Section 31 and 32 are machinery sections. Then comes Section 33 (1). the latter part of which lays down that a non-resident person shall be chargeable to Income Tax in the name of the agent of any such person, and such agent shall be deemed to be for the purposes of the Act, the assessee in respect of such Income Tax. This part of Section 33(1) therefore also is a machinery section. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very country in which his agents are established, it would lead to great injustice. The argument for the Crown must be carried' to this extent, that merely buying goods in this country is a trade exercised here so as to subject the purchaser of the goods to Income Tax.... It would be most impolitic thus to tax those who come here as customers. The subjects of a foreign states not resident here cannot be made amenable to our laws. How then are their profits to be made amenable to the fiscal' law? Simply by the provision that whosoever carries on the business and receives the profits here shall be assessed. But in the present case no profits are received by the firm, or exist in this country 13. A similar view was taken by the House of Lords in Grainger and Son v. Gough (1896) A.C. 325, where it was held that a foreign merchant who canvasses through agents in the United Kingdom for orders for the sale of his merchandise to customers in the United Kingdom, does not exercise a trade in the United Kingdom within the meaning of the Income Tax Acts, so long as all contracts for the sale and all deliveries of the merchandise-to customers are made in a foreign country. Lord Wats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required to do, including samples of materials to be dealt with, and when the machinery was supplied he was available to give the English purchaser the benefit of his experience in erecting it. The contracts between the firm and their customers were made in Copenhagen and the goods were shipped F.O.C. Copenhagen. It was held by Rowlatt, J., that the place where a trade was exercised, was the place where the transactions forming the alleged business were closed, in the case of a selling business by the sale of the commodity, and the profit thereby realized, and, that therefore the firm exercised their trade in Denmark and that they could not in respect of the same profits and gains exercise their trade elsewhere. 17. The question therefore, viz., whether the profits arose from the exercise of trade within the United Kingdom was the same as that decided in the other two cases cited above. But the provisions of Section 31, Sub-section 2 of the Finance Act (No. 2) of 1915, (5 and 6 Geo. Vic. 89) were also considered in Smidth Co. v. Greenwood (1920) 3 K.B. 275. That section runs as follows: A non-resident person shall be chargeable in respect of any profits or gains arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the effect of that sub-section is to extend the operation of Schedule D of the Act of 1853 and to render the respondent liable to be assessed for Income Tax, even though upon the facts they did not exercise trade within the United Kingdom. I am unable to accept the argument that the sub-section has that effect. It is I think important to remember the rule, which the Courts ought to obey, that, where it is desired to impose a new burden by way of taxation, it is essential that this intention should be stated in plain terms. The Courts cannot assent to the view that if a section in a taxing statute is of doubtful and ambiguous meaning, it is possible out of that ambiguity to extract a new and added obligation not formerly cast upon the tax-payer. Sub- Suction 2 here is at the best a sub-section of an extremely doubtful character, and I think there is very great weight in the argument that has been placed before your Lordships by Sir William Finlay and Mr. Bremner that, as the original charging power of the earlier statutes was derived from their schedules, if it were desired to affect and alter the operation of those schedules some clearer and better reference should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing of any such person to the duties granted by this Act and; paying the same. 23. The Finance Act (No. 2) 1915, 5 6 Geo. V. C. 89, Section 31 lays down: (1) Section forty-one of the Income Tax, 1842 (which relates to the charge of Income Tax in special cases) shall, so far as it relates to the taxation of non-residents be extended (a) so as to make non-resident persons chargeable to Income Tax in the name of any factor, agent or receiver; and (b) so as to make non-resident persons so chargeable although the branch, factor, agent, receiver or manager may not have the receipt of the profits or gains of the non-resident. (1) A non-resident person shall be charged in respect of any profits or gains arising whether directly or indirectly through or from any branch, factorship, agency, receivership or management, and shall be so chargeable under section forty-one of the Income Tax Act, 1842 as amended by this section in the name of the branch, factor, agent, receiver or manager. 24. As pointed out by Lord Sterndale, M.R. in Smidth and Co. v. Greenwood (1921) 3 K.B. 583 the duties mentioned in Section 31 (of the English Finance Act, 1915) are the duties charged und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that Section 33 (1) of the Indian Income Tax Act did not create a new category of income which could be charged under the Act in addition to incomes mentioned under Section 5 as chargeable under the Act, but that Section 33 (1) merely provided a machinery by which non-resident foreigners (amongst others) trading in British India or having business connexion in British India could be taxed on income derived by them in British India. But the learned Judges do not appear to have noticed the difference between the Indian Act and the English Act in so far as the former lays down that certain profits, though not arising or accruing in British India, shall be deemed to arise or accrue in British India. 26. There are several matters however which have to be considered and which have been urged on behalf of the company. The first is the position of Section 33 in the Act. As stated above it comes under Chap. IV headed Liability in special cases. It is to be observed that Sections 31 and 32 dealing with certain special cases (such as guardians of persons under disability, trustees, agents, or Court of Wards, etc., merely lay down that the tax is to be levied upon and recoverable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be said that Sections 7 and 11 appear under Chapter III headed Taxable income, and Sections 7 and 11, along with others, lay down in detail what would some under the heads of income I to VI in Section 6. That is so, and we refer to these sections merely as illustrations of cases in which the income, though not arising in British India, shall be deemed to be chargeable with tax. 29. The next point for consideration is that Section 33(1) speaks of profits or gains through or from any business connexion in British India, whereas Section 5 merely mentions, Income from business . If by the expression business connexion in Section 33 (1) was meant something different from business in Section 5, then it would be going beyond the classes of income which alone according to Section 5 are chargeable to Income Tax. Section 6 of Act XI of 1922 uses the word heads instead of classes. The former expression seems to have been substituted to make it more comprehensive; we think the same thing was meant by the two expressions business and business connexion, and for this reason, even if Section 33 (1) be taken as a machinery section, as contended on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 3 and 5 of Act VII of 1918 and Section 42(1) read with Sections 4 and 6 of Act XI of 1922. 35. So far as the factory at Wyndhamgunj is concerned, it clearly comes within the Act. Admittedly there is a manufacturing branch of the company at that place, and under Section 2, Clause (3) of Act VII of 1918, business' includes among other things any manufacture. The income therefore from such manufacture would be income from business, and as such taxable under Sections 3 and 5 of the Act. 36. We make no order as to costs. Mukerji, J. 37. I have read the judgment just now delivered by my learned brother Chatterjea, J. and I entirely agree in the conclusions he has arrived at. In view, however, of the importance of the questions involved I desire to make some further observations. 38. Before dealing with the cases decided under the English statutes to which our attention has been drawn, I propose first of all to deal with the relevant provisions of the Indian Acts. For this purpose, it is not very material to advert to the provisions of Act II of 1886, or the enactments which preceded the same or the subsequent amendments incorporated into the said Act by Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than the beneficiary liable. 41. There is no provision in the Act under which income is deemed to be received in British India. There is only one provision, and that is contained in Section 33 (1) under which income is deemed to accrue or arise in British India. Beading Section 3 (1) and 33 (1) together it would appear that it is income which really accrues or arises or is received in British India that is liable to tax; by a fiction some kinds of income which accrues or arises to a person not resident in British India is deemed to accrue or arise in British India (ignoring the aspect that it accrues or arises to a person outside British India) for the purpose of realizing the same from an agent resident in British India. All these kinds of income however are such as may be said to have accrued or arisen at different places in British India by reason of its having been the direct or indirect result of some business connexion there or out-Bide British India where the ultimate transactions producing the profits or gains took place-but under the Act they are deemed to have accrued or arisen in British India so as to be taxable under the Act and recoverable by making some-per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence only lies in this that one is more appropriate than the other when applied to particular cases. 44. It is clear, however as, pointed out by Pry, L. J., in Colquhoun v. Brooks (1888) 21 Q.B.D. 52 this part of the decision not having been affected by the reversal of the decision by the House of Lords (1889) 14 A.C. 493 that both the words are used in contradiction to the word ' receive ' and indicate a right to receive. They represent a stage anterior to the point of time when the income be-comes receivable and connote a character of the income which is more or less inchoate. 45. One other matter need be noted in connexion with the section. What is sought to be taxed must be income, and it cannot be taxed unless it has arrived at a stage when it can be called ' income.' In order to determine whether it is taxable under the Act the place where it has accrued or has arisen or has been received has got to be ascertained. The section ignores the person and only takes into account the place where the income accrues, arises or is received. Income may accrue at one place, arise at another and be received at a third. Again it may accrue or arise in respect of or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable if paid to a British subject or any subject or any servant of His Majesty in any part of India by Government or by a local authority established by the Governor-General in Council. I have not been able to discover any other provision in the Act by which income which is received outside British India land which neither accrues nor arises in British India nor is deemed by Act to accrue or arise in British India) has been made chargeable. Both these cases how-aver are cases where the imposition may be justified by the consideration that in one the income has accrued to a person who is ordinarily a resident of British India and in the other it has accrued or arisen to a British subject or a servant of His Majesty and has been paid out of the British India Exchequer and has so accrued or arisen in British India. 49. To turn, then, to the first four classes of cases, for the sake of brevity and convenience they may be dealt with as really of two kinds-the distinction between accruing and arising being left out of account for the moment. Taking the cases of a resident and a non-resident separately in. connexion with the accruing or arising of income as aforesaid, the posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d so chargeable to tax. 52. In my opinion, in such cases it will have to be ascertained by the taxing authorities what profits or gains (out of the income made by such a person) accrued or arose to such person, directly or indirectly, through or from any business connexion in British India. This to my mind is the plain interpretation of the statute. The accrual or arising of income to a person is different to my mind from the receipt of the income by him; and the overlooking of I this distinction in my opinion creates at confusion and makes the interpretation difficult. 53. The argument that Section 33 (1) is only a Machinery Section and should not be treated as a charging section loses all its force in the light of this interpretation. As already observed the charging section in the Act is Section 3. Section 33 (1) does not mean to travel beyond Section 3. Its position in chapter IV is not altogether undeserved as it really imposes a liability on the agent as a special case. The drafting of the section however is not free from defects. 54. We are not concerned with the policy of the legislature or the question whether the statutes infringe any principles regarded sacr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word 'business' is one of' large and indefinite import and connotes something which occupies attention and labour of a person for the purpose of profit. The word means almost anything which is an occupation or a duty requiring attention as distinguished from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profits: Smith v. Anderson (1880) 15 Ch. D. 273; Bolls v. Miller (1884) 27 Ch. D. 71; Re Marina Steam Turbine Co. (1920) 1. K.B. 193. A concern by reason of which one can be said to have connexion with such an occupation is business connexion. 56. Act XI of 1922 emphasises the distinction between 'income' and 'profit' or 'gains' by introducing profits and gains in Section 4 which is the charging section corresponding to Section 3 of Act VII of 1918 and instead of the expression classes of income and income derived from business' in Section 5 of the latter Act, speaks of 'Heads of Income, profits and gains' and 'Business' in Section 6; In Section 42 of Act XI of 1922 we find the words business connexion or property in the place of the words business connexion in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively carried on in the United Kingdom or elsewhere' And for and in respect of annual profits or gains arising or accruing to any person whatever, whether a subject of Her Majesty or not although not resident within the United Kingdom, from any property whatever in the United Kingdom or any profession, trade, employment or vocation exercised within the United Kingdom. In the case of a non-resident, therefore, the question would arise as to whether the profits or gains have arisen or accrued to him from any trade exercised within the United Kingdom. 58. In Sully v. The Attorney-General (1860) 5 H. N. 711 it was held that wherever a merchant is established, in the course of his operations his dealings must extend over various places; he buys in one place and sells in another but he has one principal place in which he may be said to trade viz., where his profits come home to him, and that is where he exercises his trade. In the Indian statute the question where the trade is exercised does not come in at all. 59. In Gainger Son v. Gough (1896) A.C. 325 it was held that a foreign merchant who canvasses through agents in the United Kingdom for orders for the sale of his m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly, through or from any branch, factorship, agency, receivership or management and shall be so chargeable under Section 41 of the Income Tax Act, 1842 as amended by this section, in the name of the branch, factor, agent, receiver or manager. 63. In Smidth Co. v. Greenwood (1922) 1 A.C. 417 the House of Lords affirmed the decision of Rowlatt, J., in Smidth Co. v. Greenwood (1920) 3 K.B. 275, and of the Court of appeal (1921) 3 K.B. 583. In that case it was held by the Court of appeal that the sub-section was not a charging sub-section but that it merely summed up the effect of Section 41 of the Act of 1842 as extended by Sub-section 1 of Section 31 of the Act of 1915, still keeping within the limits of Schedule D, and it was observed that to hold otherwise would be to hold that such an important alteration has been made in the basis of taxation as the abolition of the condition of exercise of trade within the United Kingdom before a person not there resident can be taxed. To take the latter course , Lord Sterndale observed, would be to violate the well known canon of construction of taxing Acts that no one is to be taxed except by express words. The Indian Law does not p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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