Case: The Aggarwal Chamber Of Vs. M/S Ganpat Rai Hira Lal

amount of income-tax payable on the amount of the respondents profits which in this case was deducted, retained and actually paid. This fact has not been challenged before us.The ground on which this liability is attacked is that the total world income of the respondent was not taxable and therefore, on the profits made on the Hapur transactions, the British Indian, Tax Authorities could not levy any tax. This contention disregards the provisions of and liability arising under Ss. 40 (2) and 42 (1) and the proviso thereto. It also is contrary to the principle of taxing statutes that the profits are "taxed where they are found". In this case they were in the hands of the Hapur firm which was in receipt and control of the income. The agent at Hapur, having lawfully and properly paid the tax under the Act that amount has been rightly deducted from the profits accruing on the Hapur transactions.13. The Judgment of the Judicial Committee of the Ijlas-i-khas on which the High Court has based its decision suffers from the infirmity that it ignores both the provisions of and principle underlying Ss. 40 (2) and 42 (1) of the Act and the proviso thereto relating to the liability of an agent under the Act and the law of Agency relating to employing of sub-agents by agents.If the Hapur firm rightly paid the tax on the profits, the respondent cannot be allowed to challenge the amount on the ground that his total world income was not taxable and he was entitled to his profits without deductions. This is a question which has to be agitated by the non-resident assessee at the time of his assessment. Those persons who are bound under the Act to make deduction at the time of payment of any income profits or gains are not concerned with the ultimate result of the assessment.The scheme of the Act is that deductions are required to be made out of "salaries", "interest on securities" and other heads of "income. Profits and gains" and adjustments are made finally at the time of assessment. Whether in the ultimate result the amount of tax deducted or any lesser or bigger amount would be payable as income-tax in accordance with the law in force would not affect the rights, liabilities and powers of a person under S. 18 or of the agent under Ss. 40 (2) and 42 (1). As to what would be the effect and result of application of S. 17 if and when any appropriate proceedings are taken is not a matter which arises in this appeal between 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.14. Our attention was drawn to two cases (1) Commissioner of Income-tax v. Currimbhoy Ebrahim and Sons, 1935-3 ITR 395 : (AIR 1936 PC 1 ) (F). 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 through or from any business connection with the assessee company in British India or from any property within British India and therefore S. 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 in-income" was not assessable to income-tax. The argument of isolated transactions based on the Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, Madras, 1953 SCR 454: (AIR 1953 SC 105 ) (G), is not available to the respondent nor was the foundation for any such argument laid in the Courts below or raised in the statement of the case filed by the respondent in this Court. Another case on which reliance was placed is Greenwood v. F. L. Smidth and co., 1922-1 AC 417 (H). That was a case of a Danish firm resident in Copenhagan. It manufactured and dealt with cement making machinery which it exported to other countries. It had an office in London in charge of a qualified engineer who received enquires for machinery such as the firm could supply, sent to Denmark particulars of the work which the machinery was required to do and when the machinery was supplied he was available to give English purchaser the benefit of his experience in erecting it. The contracts between the firm and their customers were made in Copenhagan and the goods were shipped F. O. B. Copenhagan. It was held in that case that the firm did not exercise a trade within the United Kingdom within the meaning of Sch. D of Ss.2 of the Income-tax Act, 1853 and was therefore not assessable to income-tax. This decision is not relevant to the case now before us as the facts were different and the decision was under a different statute.15. In our opinion the Judicial Committee of Ijlas-i-khas was in error in holding that before fixing the liability of a contributory to tax paid by an agent in British India for and on behalf of the non-resident contributory, his liability to pay tax on his "entire income", really total world income, had to be established. Therefore the finding of the High Court that the Liquidator cannot claim from the respondent the amount of tax paid by the Hapur firm on transactions entered into by the appellant for and on behalf of the respondent unless it was shown that his total world income was taxable is unsustainable. As between the parties the tax paid by the agent had to be taken into account irrespective of the ultimate result of the assessment on the non-resident.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]15. In our opinion the Judicial Committee of Ijlas-i-khas was in error in holding that before fixing the liability of a contributory to tax paid by an agent in British India for and on behalf of the non-resident contributory, his liability to pay tax on his "entire income", really total world income, had to be established. Therefore the finding of the High Court that the Liquidator cannot claim from the respondent the amount of tax paid by the Hapur firm on transactions entered into by the appellant for and on behalf of the respondent unless it was shown that his total world income was taxable is unsustainable. As between the parties the tax paid by the agent had to be taken into account irrespective of the ultimate result of the assessment on the non-resident.