Case: Barendra Prasad Ray and Others Vs. Income Tax Officer 'A' Ward Foreign Section and Others

The appellants are partners of a firm of Solicitors known as M/s. Orr Dignam &Co. having its office at Calcutta. The appellants acted as the Solicitors of a German Corporation known as Ferbwerke Hoechst Aktiengesellschaft Vormals Mester Lucius &Bruning (a Corporation organised under the la w of Federal Republic of Germany) (hereinafter referred to as the German Corporation ) in two suits filed on the Original Side of the Calcutta High Court-one Suit No. 511 of 1962 filed by the Bengal Chemical and Pharmaceutical Works Ltd. against German Corporation and another Suit No. 1124 of 1962 filed by the German Corporation against the Bengal Chemical and Pharmaceutical Works Ltd. on the alleged infringement of a patent. The appellants were instructed by a firm of Solicitors in London namely M/s. Ashurst, Morris, Crisp &Co. (hereinafter referred to as the London Solicitors) who were also acting for the German Corporation by a cable dated May 31, 1965 to retain in the said suits Mr. Blanco White Q.C., a reside nt of the United Kingdom, who was a barrister having considerable practice in the branch of patent law. On his arrival in India, the appellants accordingly retained Mr. Blanco White as the counsel to argue the case of their clients-the German Corporation even though they did not deliver any briefs to him and also did not pay or undertake any obligation to pay any fees for his services. The briefs had been earlier delivered by the London Solicitors. It is stated that they did n ot know as to how much amount was payable to him by the London Solicitors by way of fees. The hearing of one of the said two suits lasted for thirteen days commencing from January 27, 1970 and was concluded on February 16, 1970. Mr Blanco White lef t India on February 17, 1970 after the hearing was over without making any arrangement regarding the payment of income tax on the fees earned by him by arguing the case of the German Corporation. Thereafter on February 19, 1970, the appellants received a notice from the Income-tax Officer, A Ward, Foreiga Section asking them to furnish information about the fees earned in India by Mr. Blanco White as counsel engaged by them to argue the case of their clients i.e. the German Corporation and also drawing their attention to the liability arising under section 195 (2) ofthe Income-tax Act, 1961 (hereinafter referred to as the Act) which required them to deduct the tax payable under the Act at source on payments made to a no n-resident. The appellants sent a reply to that letter on February 24, 1970 stating that Mr. Blanco White had been engaged by the London Solicitors of the German Corporation to appear before the Calcutta High Court on behalf of the German Corporation and that they had neither briefed him nor had they incurred any liability to pay him any fees. They, therefore, denied their liability under section 195(2) of the Act. Incidentally it may be stated here that the appellants referred to one other suit i. e. Suit No. 422 of 1963 on the file of the Calcutta High Court filed by the German Corporation against Albert David Ltd. in which also Mr. Blanco White had been engaged for the German Corporation. Thereupon by a letter dated February 27, 1970 the Income-tax Officer informed the appellants that he proposed to proceed against them under section 163 (1) of the Act treating them as the agents of Mr. Blanco White on the ground that the income in question had arisen on account of the business connection that existed between the appellants and Mr. Blanco White. To this, the appellants sent a long reply dated March 10/11, 1970 denying their liability to be proceeded against under section 163 (1) of the Act. In th e course of the said reply, the appellants contended inter alia that they had not either engaged or briefed Mr. Blanco White in the three suits on the file of the Calcutta High Court; that they had not paid or promised to pay any fees lo him and that , therefore, no income had accrued to Mr. Blanco White on account of any business connection that existed between them and Mr. Blanco White. The appellants further contended that as Mr. Blanco White was a barrister who was not carrying on any bus iness but had only, rendered professional service in Calcutta, the connection if any, could not be a business connection. They also questioned the jurisdiction of the Income-tax Officer to make any assessment treating them as the represe ntative assessees of Mr. Blanco White. The Income-tax Officer by his letter dated March 25, 1970 rejected the plea of the appellants and called upon them to appear before them on April 18, 1970 to make any other submission that they had to make . Thereafter the appellants filed a petition under Article 226 of the Constitution before the High Court of Calcutta and obtained a rule nisi on May 25, 1970) calling upon the Income-tax Officer, the Commissioner of Income-tax West Bengal and the Union of India to show cause as to why the proposal to initiate proceedings under the Act as stated above should not be quashed and a writ in the nature of mandamus prohibiting them from proceeding against the appellants under section 16 3(1) of the Act should not be issued. The petition was contested by the respondents. In the Counter Affidavit filed by the Income-tax Officer, it was asserted that the Department had received information that Mr. Blanco White had charged Rs. 17, 000/- per day by way of fees for appearing in the Calcutta High Court in the suits referred to above; that Mr. Blanco White was not domiciled in India; that inasmuch as his stay in India did not exceed ninety days it was not necessary for him to obtain a Tax Exemption Certificate for leaving India; that the appellants had acted as instructing Solicitors to the German Corporation in the three suits in which Mr. Blanco White had argued as counsel; that he could not have, according to the Calcutta High Court Rules (Original Side) appeared before that court unless he was instructed by an Attorney of that Court was in the instant case happened to be the appellants and that, therefore. there existed a business connection which brought the appellants within the scope of section 163(1) of the Act. It was also contended by the respondents that the petition was premature as the matter had still to be decided in accordance with the procedure prescribed by th e Act. The learned Single Judge who heard the petition was of the view that the question whether the case came within the purview of section 163(1) had to be determined after ascertainment of facts by the Income-tax Officer and that therefore , the petition was liable to be dismissed on the ground that it was a premature one. Accordingly he dismissed it without expressing any opinion on the merits of the case. Aggrieved by the decision of the Single Judge, the appellants preferred a n appeal before the Division Bench of the Calcutta High Court. The Division Bench dismissed the appeal holding, inter alia, that from the facts disclosed before the Court it appeared that from May 31, 1965 upto February 16, 1970 there was business connection (directly of indirectly through correspondence) between the appellants firm and the non- resident British counsel, Mr. Blanco White, that it could not be said that there was no element of continuity and that the transaction was a solicitory and isolated one and that taking into account the surrounding circumstances and particularly the relationship between the Solicitors and a counsel, an agency could very well be said to have been established between the appel lants firm and the non- resident British counsel, Mr. Blanco White. The Division Bench further held that there was business connection between them and that it was not possible to accept the contentions of appellants that no income e ither accrued or arose to Mr. Blanco White in India. The appeal was accordingly dismissed. On a certificate granted by the Division Bench under Article 133 of the Constitution, the appellants have come up in appeal to this Court against the judgment of the Division Bench of the Highshould be stated here that alongwith the petition for a certificate under Article 133 of the Constitution, the appellants filed an application before the High Court for stay of further proceedings before the Department. On that application, the High Court passed an order on March 12, 1973 stating that the order of stay already granted would continue subject to the following

Reasoning:
For proper appreciation of the contentions advanced by the parties before us, it is necessary to refer to some of the provisions of the Act. Section 160(1)(i) of the Act prov ides that in respect of the income of a non-resident specified in sub-section (1) of section 9 of the Act, the agent of the non-resident, including a person who is treated as an agent under section 163 is a representative assessee. Section 161 ( 1) of the Act stipulates that every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the t ax shall, subject to the other provisions contained in Chapter XV of the Act be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Section 163 (1 )(b) and (c) of the Act provides that for purposes of the Act any person in India who has any business connection with the non-resident or from or through whom the non-resident is in receipt of any income whether directly or indirectly can be treated as an agent of such nonresident. Section 5(2) of the Act inter alia provides that subject to the provisions of the Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during suchthe facts stated above it is seen tha t from the year 1965 there was correspondence between the appellants and the London Solicitors who in their turn had engaged Mr. Blanco White in connection with the suits in question. It shows that there was a connection between the appellants and M r. Blanco White though it was an indirect one. After his arrival in India, it must be assumed that the appellants had done all that was suggested in the letter of the London Solicitors dated December 23, 1969. It is admitted that Mr. Blanco White appeared with the Indian counsel engaged by the appellants and argued the case on behalf of the client of the appellants in the suit in which they were acting as solicitors. Even though the appellants did not hand over ally briefs directly to Mr. Blanco White, it is seen that part of the records handed over to Mr. Blanco White by the London Solicitors consisted of the copies of records sent by the appellants to the London Solicitors. It is further seen that Mr. Blanco White appeared b efore the High Court alongwith the Indian counsel engaged by the appellants, though with the leave of the Court granted presumably under section 32 of the Advocates Act 1961. We are also of the view that there must have been discussion b etween the appellants and Mr. Blanco White before the case was argued by him. Moreover, Mr. Blanco White could appear only with the consent of the appellants who were the Solicitors on record. In the circumstances, it cannot be said that the High Court was wrong in holding that there was connection between the appellants and Mr. Blanco White. The said connection cannot also be termed as a casual one having regard to the period over which it had existed. It was real and intimate and Mr. Blanco White earned the fees for arguing the case in India only through the said connection. The case satisfies the test laid down by this Court in Commissioner of Income-tax, Punjab v. R.D. Aggarwal and Co. and Anr. for holding t hat there was connection between the appellants and Mr. Blanco White. The finding of the High Court on the above question also appears to be wellonly remaining question which needs examination is whether the said connection was a business connection. The contention of the appellants is that a professional connection cannot amount to a business connection attracting section 9(1) of the Act. In support of this contention the appellants depend upon the definitions of the expressions business and profession found in section 2 (13) and section 2(36) of thedefinition of the expression business given in the Act is an inclusive one. The expression business connection however is not defined in the Act. It is manifest that the words in section 9(1) and section 163 are comprehensive enough to include all heads of income mentioned in section 14 of the Act. It is no doubt true that there is specific reference to business in section 9(1) and there is no reference to profession. But no tenable reason is discernible from the statute for excluding income arising out of profession from its scope. In this connection two submissions are made on behalf of the appellants - (1) that it was the intention of the Parliament to exclude non- residents engaged in learned professions from the operation of section 9(1) and that even if the intention of the Parliament was not to exclude such persons from section 9(1) since there is an omission to refer to them expressly the lacuna should not be made good by giving a wide interpretation to the expression business connection. We do not find that there is any substance in the first submission. There could be no good reason for the Parliament f or excluding non-resident professional men from the purview of section 9(1) of the Act. There is no material on which we can reach that conclusion. In so far as the second submission is concerned, we have to examine whether it would really amount to filling up a lacuna in the section if the expression business connection is interpreted as including within its scope Professional Connectionword business however is also used in another and a very different sense, as meaning an active occupation or profession continuously carried on and it is in this sense the word is used in the Act with which we are hereword business is one of wide import and it means an A activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. We are of the view that in the context in which the expression business connection is used in section 9 (1) o f the Act there is no warrant for giving a restricted meaning to it excluding professional connections from itsis very little substance in the submission made on behalf of the appellants that since Mr. Blanco White could not appear as counsel as of right either under the Advocates Act or under the Calcutta High Court original Side Rules he could not be treated as having any business connection with the appellants. As noticed earlier Mr. Blanco White appeared alongwith the Indian counsel engaged by the appellants and the appellants continued to represent the German Corporation when Mr. Blanco White argued the case before the High Court. It is difficult to hold that he was a stranger to the appellants. The appellants may not have engaged him to argue the case but they allowed him at the request of the London Solicitors to argue the case and willingly cooperated with him in doing so. That it was their case that Mr. Blanco White argued cannot be denied. The appellants may not have undertaken to pay his fees but he could not have argued and earned the fees without associating himself with the appellants. The fact that Mr. Blanco White being a barrister could not file a suit to recover the fees would not make any difference in this case as in the letter dated August 19 1980 written by the London Solicitors to the appellants which is produced before us it is stated that the fees of Mr. Blanco White amounted to oe 2200 with refreshers at the rate of oe 220 per day. We need not go into the correctness of these figures but the fact remains that Mr. Blanco White has earned income for the work done in India. We do not propose to go into question as to what would happen if no fees have been realised by him atview of the foregoing we are of the view that the judgment of the Division Bench of the High Court which is under appeal does not call for interference.The above cable shows that the London Solicitors had sought information about the suits in Calcutta t o enable them to engage Mr. Blanco White to plead on behalf of the German Corporation in the said suits. On December 23, 1969, the London Solicitors wrote a letter to the appellants in which it was stated that the copies of certain documents sent by the appellants had been handed over to Mr. Blanco White in addition to copies of certain other documents which they themselves had handed over to him.