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TMI Blog1957 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Division Bench of the Pepsu High Court set aside and the order of the learned liquidation judge restored - - - - - Dated:- 11-11-1957 - Judge(s) : KAPUR., SINHA JUDGMENT The judgment of the court was delivered by KAPUR, J.--This is an appeal brought pursuant to a certificate under article 133(1)(c) of the Constitution from the judgment and order of the Division Bench of the erstwhile Pepsu High Court pronounced on 10th March, 1953, modifying in appeal the order of the liquidation judge. The facts are fully recited in the judgments of the courts below and comparatively a brief recital will be sufficient for the purpose of this judgment. The appellant company was incorporated in 1934 under the Companies Act of the erstwhile Patiala State. It carried on the business of commission agency for dealing in forward transactions in various kinds of grain and other commodities. The respondent--firm Ganpat Rai Hira Lal of Narnaul--besides being a shareholder of the appellant company had dealings with it and entered into several forward transactions of sale and purchase of grain and other commodities. The appellant, acting as a commission agent of the respondent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the official liquidator be directed to apply to the Income-tax authorities for a refund of the amount retained and paid by the Hapur firm, as no tax was really due on the transactions entered into by the appellant with the Hapur firm and none was payable by the respondent. After evidence was led by both parties the payment order was made by the learned liquidation judge on 18th January, 1949, for a sum of Rs. 8,191-0-9 which included a sum of Rs. 6,867-9-6 the proportionate amount of income-tax due on the profits accruing on the respondent's transactions. Against this order the respondent took an appeal to the Division Bench and canvassed two points : (1) that the respondent could not be settled on the list of contributories, and (2) that it was not liable for the amount retained for payment of income-tax from out of profits on the transactions entered into on its behalf by the appellant with the Hapur firm and subsequently paid by the latter. The court negatived the former contention and held that the respondent had rightly been settled on the list of contributories and upheld the latter contention and held, following a judgment of the Judicial Committee of the Ijlas-khas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the profits made on the transactions entered into with the Hapur firm for and on behalf of the respondent. The respondent challenged its liability to pay income-tax on the ground that, it was liable : "only on his total earnings during the year under assessment and since, as is clear even from the books of the respondent, he had suffered heavy losses in his business at Narnaul, his total income was not assessable to any income-tax." The learned liquidation judge held the respondent liable for the amount of the income-tax by applying section 69 of the Contract Act. The Division Bench on appeal disallowed this item on the ground that it had not been shown that the "total earnings" of the respondent were taxable under the Act. Neither of the courts below have discussed the relevant provisions of the Act, not even section 42 which was mentioned by the respondent in his application of 23rd May, 1944, nor have they given a finding as to the jural relationship of the Hapur firm with the respondent. The agency of the Hapur firm was not seriously disputed before us nor repudiated. The case seems to have proceeded on the basis of this agency in the courts below. The Hapur firm was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot deal with or affect the rights and liabilities of persons required under the Act to make deductions of income-tax from sums payable to non-residents or the consequences of failure to make such deductions. The very next Chapter (Chapter IV) deals with deductions which the Act requires to be made in regard to different heads of income. Section 18 provides for deduction at the source. Sub-section (3A) of this section was as under : "Any person responsible for paying to a person not resident in British India any interest not being 'interest on securities,' or any other sum chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay income-tax thereon as an agent, deduct income-tax at the maximum rate." The proviso to this sub-section made provision for payment of monies without deduction if there was a certificate of the Income-tax Officer to that effect. Under section 18(7) of the Act a person making the deduction was required to pay the amounts so deducted to the Income-tax authorities. In default of such deduction such person became an assessee in respect of the tax. Chapter V of the Act deals with "Liability in speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singer : "The fact is that, if the Income Tax Acts are examined, it will be found that the person charged with tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it is sought to reach. The object of the Acts is to secure for the State a proportion of the profits chargeable, and this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found." See also Archer Shee v. Baker Executors of Estate Dubash v. Commissioner of Income-tax. This has rightly been stated to be the underlying principle of the deduction under sections 40, 41 and 42. Section 48 of the Act deals with "Refunds" and if the respondent thought that it was not liable to the payment of any tax it could apply to the Income-tax Officer for refund. Thus the Hapur firm being an agent could be held liable under sections 40(2) and 42(1) of the Act as an assessee for income-tax on the profits made on the respondent's transactions at Hapur and was therefore entitled under the proviso to section 42(1) to retain the estimate amount of income-tax payable on the amount of the respondent's profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the appellant and the respondent nor can that matter be adjudicated upon in these proceedings. That is a matter which would be entirely between the respondent and the Income-tax authorities seized of the assessment. Our attention was drawn to two cases (1) Commissioner of Income-tax v. Currimbhoy Ebrahim Sons. In that case the assessee company had been treated, as an agent of the Nizam of Hyderabad who had lent to the assessee company a sum of Rs. 50 lakhs. The assessee company had paid in the assessment year a sum of Rs. 3 lakhs on account of interest and it was held that the interest earned by the Nizam did not accrue or arise to the Nizam through or from any business connection with the assessee company in British India or from any property within British India and therefore section 42 was not applicable. No question of "business connection" was raised in the court below and the argument there proceeded on the basis that the respondent was not liable for this amount on account of income-tax because the "entire income" was not assessable to income-tax. The argument of isolated transactions based on Anglo-French Textik Co. Ltd. v. Commissioner of Income-tax, Madras, is ..... 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