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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 ..... sessed for the year 1922-23, and the tax 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 deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Section 33 (1) is merely what is called a " machinery " section enacted for the purpose of laying down the mode in which 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be said to trade, viz., where his profits come home to him. That is, where he exercises his trade It would be very inconvenient if this was otherwise. If a man were liable to income tax in every 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had an office in London in charge of a qualified engineer who was their whole-time servant. He received enquiries for machinery such as the firm could supply, sent to Denmark particulars of the work which the machinery was 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act of 1915, still keeping within the limits of the charge of Schedule D. 20. In the House of Lords (6) Lord Buck-master referring to Section 31 (2) of the Finance Act, 2 of 1915, observed: The appellant 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , guardian, tutor, curator, committee, agent or receiver shall be answerable for the doing of all such acts, matters. and things as shall be required to be done by virtue of this Act in order to the assessing 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 mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the Board of Revenue v. The Madras Export Company A.I.R. 1923 Mad. 422 which in its facts is similar to the present case, as followed the English case of Smidth v. Greenwood (1920) 3 K.B. 275. It has held 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council. " The 5th head is " Professional Earning" and Section 11 (3) provides that " Professional fees paid in any part of India to a person ordinarily resident in British India shall be deemed to be profits or gains chargeable under this head." 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, it is not for us to consider. We have to construe the Act, and having regard to the essential difference in language between the English and Indian Acts upon the point under consideration, we are unable to follow the English authorities decided with reference to the English statutes, or the Madras case referred to above. We accordingly hold that the company are liable to pay Income Tax having regard to the 'provisions of Section 33 (1) read with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a legal fiction, i.e., where the income is deemed to accrue or arise or be received in British India. A close examination of the provisions of the Act discloses that the fiction does not purport to transform something unreal into real; the income is there; it has accrued, or arisen or been received; the fiction only fixes the place where it is to be deemed as having accrued arisen or been received, and the fiction is resorted to in order to make some person 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up by way of addition or increase or as an accession or advantage, while the word ' arises,' means comes into existence of notice or presents itself. The former connotes the idea of a growth or accumulation, the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such receipt has been made chargeable. The Act by Section 10, Sub-section (3) has made provision for a particular case of this nature by enacting that professional fees paid in any part of India to a person ordinarily resident in British India shall be deemed to be income chargeable under the head of professional earnings. By Section 6, Sub-section (2), any income which would be chargeable under the head of salaries if paid in British India shall be deemed to be so chargeable 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 Majes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans that the non-resident assessee is to be made liable to tax for such profits or gains which accrue or arise to him directly or indirectly through or from any business connexion within British India. He may have received the income outside British India; it may have accrued or arisen to him when he was outside British India; but the same or such part of it as may be taken to be profits or gains accruing or arising through such connexion is to be deemed as income accruing or arising in British India and 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 &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be included in the general expression 'income derived from business' which is used in Section 5. The expression, it must be admitted, is dangerously vague and it is much to be regretted that in a fiscal enactment a more precise expression has not been used. The meaning, however, does not admit of much doubt: for the context shows that it is such gains or profits as may be calculated to have been made as being that part of the income of the nonresident which is attributable to the connexion he has with a business in British India. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... framed to include all such sources of income. Schedule D, the operation of which is limited to the classes of income not charged under any other Schedule charges to tax income "for and in respect of the annual profits or gains arising or accruing to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere and for and in respects of the annual profits or gains arising or accruing to any person residing in She United Kingdom, from any profession, trade employment or vocation, whether the same shall be respectively 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 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are to be deemed to have accrued or arisen in British India for the purpose of making the resident agent responsible for the tax. Section 41 of the Act of 1842 may be read as follows: Any person not resident in the United Kingdom, whether a subject of Her Majesty or not, shall be changeable in the name of any factor, agent or receiver having the receipts of any profits or gains arising as herein mentioned. 62. By Section 31, Sub-section 2 of the Finance Act (No. 2) of 1915: "A non-resident person shall be chargeable 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Inland Revenue in the Exercise of the powers conferred by Section 59 of the Indian Income Tax Act (XI of 1922) have framed certain rules of which Rule 33 runs as follows:
In any case in which the Income Tax Officer is of opinion that the actual amount of the income, profits or gains accruing or arising to any person residing out of British India whether directly or indirectly through or from any business connexion in British India cannot be ascertained, the amount of such income, profits or gains for the purpose of assessment to Income Tax may be calculated on such percentage of the turnover so accruing or arising as the Income Tax Officer may consider to be reasonable, or an amount which boars the same proportion to the total profits of the business of such person (such profits being computed in accordance with the provisions of the Indian Income Tax Act), as the receipts so accruing or arising bear to the total receipts of the business, or in such other manner as the Income Tax Officer may deem suitable.
67. The Rule is drawn from the English statutes and its sufficiency or validity is not a matter for our consideration in this Reference.
Chotzner, J.
68. I agree. X X X X Extracts X X X X X X X X Extracts X X X X
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