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TMI Blog1928 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... The Bombay Company disputes the alleged "business connection" and says that in any event it is necessary, having regard to Section 40 of the Act, for the alleged agent to be in receipt on behalf of the Hongkong Company of any income chargeable under the Act, and that consequently the Bombay Company is not liable, as Sections 40, 42 and 43 must be read together and not disjunctively. Alternatively, they say that the Hongkong Company itself may be directly liable under Section 4 of the Act, and that consequently an assessment ought not to be made on the Bombay Company, more especially as the Bombay Company has no power of deduction under Section 18 of the. Act, and as Section 19 provides that in other Corporation cases the tax should be paid by the assessee direct. 3. The material facts appear to be shortly as follows. The Bombay Company was incorporated in Bombay in September 1920. The Hongkong Company was incorporated in Hongkong in July 1921. The latter's memorandum of association, Exhibit A, shows that it was a financing company as was also mainly the Bombay Company, as shown by its memorandum, Exhibit B. As regards their respective financial operations we have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the Shanghai house of Sassoons advising them of that remittance and asking them "to place it to the credit of the Hongkong "Company at your end." Thirdly, the Bombay Company write, to the Hongkong Company, saying: We have advised Messrs. E.D. Sassoon & Co. Ltd. Shanghai to credit your account at their end with ₹ 2,625 being the interest on your deposit of ₹ 50,000 due today". These three letters are all dated September 6, 1925. We also had put in evidence a statement as to the reverse process, viz., a letter of May 12, 1928, from the Secretary of the Hongkong Company to the Bombay Company with reference to an original advance of money. It ran as follows:- I am instructed to inquire whether or not you will agree to accept Ea. 1,25,00,000 (rupees one crore and twenty-five lacs) from us on call as from June 1 next at 5 1/4 per annum interest. If you are prepared to accept this sum on the above-mentioned terms, instructions have been given to our Bombay Bankers-Messrs. E.D. Sassoon & Co. Limited-to pay you this amount), in exchange for which please send us your acknowledgment. 5. We were informed by counsel for the assessee that there was no wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources." 9. The case then is very different from Greenwood v. F, L, Sinidth & Co. [1921] 3 K.B. 583. There a Danish butter company was held not to carry on any trade in England, as all contracts and deliveries were made outside the United Kingdom. So, too, the present facts would seem to satisfy what Lord Herschell says in Grainger & Son v. Gough [1896] A.C. 325 :- Does he, then, exercise his trade within the United Kingdom? It has been sometimes said that it is a question of fact whether a person so exercises his trade. In a sense this is true; but, in order to determine the question in any particular case, it is essential to form an idea of the elements which constitute the exercise of a trade within the meaning of the Act of Parliament, In the first place, I think there is a broad distinction between trading with a country and carrying on a trade within a country. Many merchants and manufacturers export their goods to all parts of the world, yet 1 do not suppose any one would dream of saying that they exercise or carry on their trade in every country in which their goods find customers. But that again was a case where at most the foreign merchant canvassed for order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 42, however, makes no express reference to the agent being in receipt of the income. 12. We have heard full arguments on this point, and in the result I respectfully agree with the judgments of Mr. Justice Woodroffe and Mr. Justice Greaves so far as they are applicable, and would hold that these sections should be read jointly and not disjunctively. I will assume for the moment that any person who is deemed to be an agent within the meaning of Section 43 is also an Income Tax agent for the purposes of Section 40. Stopping there, it is, I think, clear that such agent, so far as Section 40 is concerned, must be in Trust On behalf of the non-resident of the income in question. Then in the view which I take Section 42 is directed to extending or explaining the profits of a non-resident mentioned in Section 40, so as to make it clear that they include "all profits or gains accruing or arising to 'the non-resident' whether directly or indirectly through or from any business connection or property in British India". 13. So, too, Section 42(2) contains certain provisions for assessing the profits of a non-resident foreign subject on a true basis where the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no power of deduction in the Bombay Company when it pays the interest due on the loans. On the contrary, Section 19 provides that in all cases other than those mentioned in Section 18 "the tax shall be payable by the assessee direct." 17. The case then for the Grown, even when put at its highest, is, I think, one where in effect it is sought to impose a new liability on residents which did not previously exist, namely, as statutory agents under Sections 43 and 42 as opposed to agents in the ordinary meaning of that term, and that there is a serious doubt as to whether Section 42 is intended to impose a personal liability on any alleged agent who is not in the receipt of income on behalf of the non-resident. Indeed, as I have already stated, the majority of the learned Judges in Imperial Tobacco Company of India, Ltd. v. The Secretary of State for India I.L.R (1922) Cal. 721 have already held expressly that Sections 31 and 34 in the 1918 Act corresponding to Sections 40 and 43 in the present Act must be read jointly and consequently that receipt of income is necessary by a statutory agent under Section 34. I should also infer that those learned Judges considered that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section without producing that effect such a meaning should be given."... Redundancy however is not unknown in legislation. I think it is better to impute such redundancy than 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 would, I think, be to violate the well-known canon of construction of taxing Acts, that no one is to be taxed except by express words. 19. That, then, being my view of the construction of the Act, was the Bombay Company "in receipt on behalf of" the Hongkong Company of any income profits or gains chargeable under the Act? In my opinion they were not. It is not suggested that they were agents in the ordinary sense of that word for the Hongkong Company. At most they were agents within the extended meaning given to that word by Section 43. But in my judgment they never were in receipt of any interest on the loans on behalf of the Hongkong Company. On the contrary, it was their duty to pay that interest and not in any way to receive it. On the facts before us they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to think that in the case of a non-resident the Crown may pursue whichever remedy they prefer. I would, accordingly, respectfully agree with the decision of Sir John Wallis to that effect in Chief Commissioner of Income Tax v. Bhanjee Eamjee & Co. I.L.R (1921) Mad. 773. which was cited to us in the Remington Typewriter case (The Commissioner of Income Tax v. Remington Typewriter Company AIR1928Bom465 heard next after this one. I of course appreciate that Sections 3 and 4 are the main charging sections. On the other hand, to determine what income is to be charged in certain cases one has to turn to Sections 40 to 43. 23. So, too, my above finding on the true construction of Sections 40 and 42 renders it unnecessary for me to determine whether there was a "business connection" between the Hongkong Company and the Bombay Company within the meaning of Section 43. Or whether within the meaning of that section the Bombay Company was a person "through whom" the Hongkong Company was in receipt of the income. for the purposes of my main decision, I have been content to assume that the Bombay Company is to be deemed to be an agent within the meaning of Section 43. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income, profits or gains of the non-resident. 26. I may add that as regards the decision in Imperial Tobacco Company's case to the effect that the agent charged must be in receipt of income, there has been no subsequent alteration made in Sections 40 to 43 on that point, apart from the addition of the words "or property" in Section 42, and the alteration I have already referred to in Section 43. But, on the other hand, Sections 57 and 68 have been amended so as to necessitate the deduction of super-tax as well as Income Tax; on dividends. That, however, is another point. Up to now the Legislature has not altered the general construction which the majority of the Judges in Imperial Tobacco Company's case placed on Sections 31 and 34 of the 1918 Act. It has met the finding in that case that the company was not in receipt of its dividends on behalf of its shareholders, and consequently not within Section 81, by extending the section for compulsory deduction of tax from such dividends. 27. As regards the meaning of the word "property" in Section 42, 1 think there is much force in the contention of counsel for the Bombay Company that it must be confined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as capitalists and financiers, lending money and executing all kinds of financial operations. There was undoubtedly an intimate connection between the Bombay Trust Corporation and the Hongkong Trust Corporation. The Hongkong Trust Corporation, as I have said, practically confined all its activities to its money lending business with the Bombay Trust Corporation in Bombay and lent the whole of the fifteen or sixteen crores constituting its paid-up capital and cash deposits to the Bombay Trust Corporation from time to time at five and a quarter per cent, interest. The interest accruing due was remitted by the Bombay Trust Corporation through its bankers Messrs. E. 1). Sassoon & Company, Bombay, to the Shanghai branch of the same bankers which kept an account of the Hongkong Trust Corporation, On the profits and income accruing to the Hongkong Trust Corporation from this money-lending badness for the years ending March 31, 1925, and March 31, 1026, the Commissioner has assessed the Bombay Trust Corporation under Sections 42(1) and 43 of the Indian Income Tax Act XI of 1922 as agents of the Hongkong Trust Corporation to Income Tax and super-tax for the financial years 1925-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Trust Corporation were separate legal entities there was that intimate connection between them, as shown by their dealings, which shows that the Hongkong Trust Corporation was formed practically for the purpose of lending all its available cash to the Bombay Trust Corporation and the intermediary between the two Corporations were the bankers E.D. Sassoon & Company. The Hongkong Corporation lent all its paid-up capital and cash deposits apparently without security to the Bombay Company. Such a connection between the Hongkong Trust Corporation and the Bombay Trust Corporation would, I think, generally be regarded as a "business connection" and therefore the interest paid by the Bombay Trust Corporation were profits or gains accruing to the Hongkong Trust Corporation in British India. In this view of the question if the decision in Whitney v. Inland Revenue Commissioners [1926] A.C. 37 is applicable to our Act the Hongkong Trust Corporation itself can be reached by a notice to make a return and be assessed on failure to do so in respect of this business done by it in Bombay. 35. But the further question arises whether the Bombay Trust Corporation are the proper persons wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity? I think not. I think that agent in Section 42(1) mast mean agent in receipt of income on behalf of the non-resident as in Section 40. The income in Section 40 includes the income in Section 42(1), Otherwise we have a contradiction as to the agent to be assessed. 39. Then Section 43 creates a statutory agent. It does not substitute such agent for an agent in receipt of income on the non-resident's behalf. It says certain persons may be agents, They are:- (1) an employee, (2) one having a business connection with the non-resident, and (3) one through whom the non-resident receives the income, or, it may be, one whose possession of the income is the constructive possession of the non-resident. Neither construction of (3) matters here because the Bombay Trust Corporation are mere debtors and cannot, in my opinion, be regarded as fulfilling either description. If the Legislature had intended that the statutory agent should be the source of the income it should have said so in clear and unmistakable terms. 40. Nor is the business connection here existing between the two Corporations such that the Bombay Trust Corporation can be regarded as a person in receipt of the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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