Case: Turner Morrison &amp; Company Limited Vs. Commissioner of Income Tax, West Bengal

Messrs. Port Said Salt Association Ltd., (hereinafter referred to as "the Association") is a company incorporated in the United Kingdom and has its registered office there. The Association, however, carries on business in Egypt and its head office is situate in Alexandria where the annual general meetings of its share-holders are held. Not being resident in the United Kingdom the Association pays no British Income-tax, an its profits. For the purposes of assessment under the Indian Income-tax Act, the Association has been considered to be a non-resident. The Association manufactures salt in Egypt where it has certain concessions and the salt as manufactured is sent for sale in any country where there is a suitable market. Part of the salt so manufactured by the Association is consigned to Messrs. Turner Morrison and Co. Ltd., for sale in India. All shipping operations, i.e. chartering of steamer, loading, insurance etc. are effected in Egypt by the Association who sends the documents to Messrs. Turner Morrison and Co., Ltd. Messrs. Turner Morrison and Company Ltd. effect sales in India through brokers at the best price obtainable at or above the prices approved by the Association. Turner Morrison and Co. Ltd. are paid commission at the rate of 2-1/2 per cent generally on all the sales except in some cases where 1-1/4 per cent, is paid. All handing of the cargoes when they arrive at Calcutta and the necessary disbursements in connection therewith are carried out and made by Turner Morrison and Co. Ltd. The sale proceeds are collected by Turner Morrison and Co. Ltd., and credited to the account kept in their own name with the Hongkong and Shanghai Banking Corporation. After deducting the expenses including their commission, the balance is remitted by Turner Morrison and Co., Ltd. to the Association in Egypt. On these facts the Income-tax Officer treated Turner Morrison and Co. Ltd., as the agents of the Association under S. 43, Income-tax Act, and assessed them to income-tax for the two assessment years mentioned above under S. 4(1) (a) or, alternatively, under the first part of S. 4(1) (c). They were also assessed to Excess Profits Tax for the four chargeable accounting periods hereinbefore mentioned.(3) Turner Morrison and Co. Ltd. (hereinafter referred to as the Agents) preferred appeals against the aforesaid assessment orders to the Appellate Assistant commissioner who, however, dismissed the appeals. The Agents took a further appeal to the Income-tax Appellate Tribunal. The submission of the Agents before the Tribunal was that the assessment under S. 4(1) (a) was bad and that the assessment should have been made under S. 42 of the Act. The Tribunal, on a consideration of the facts, came to the conclusion that the assessment was properly made under S. 4(1) (a) and incidentally the Tribunal also came to the conclusion that the alternative contention of the Income-tax authorities that then assessment should be made under the first part of S. 4(1) (c) was also well-founded and that S. 42 had no application to the case. The result was that the Tribunal confirmed the findings of the Income-tax Officer and the Appellate Assistant Commissioner and dismissed the appeals.(4) On the application of the Agents made under S. 66(1) of the Act the Appellate Tribunal referred the following questions to the High Court: " (1) Whether, in the facts and circumstances of this case, the Tribunal was right in holding that the income, profits and gains derived from the sale of salt in British India are assessable to tax as income, profits and gains received or deemed to be received under S. 4(1) (a)? And if the answer to the first question is in the negative, (2) Whether, in the facts and circumstances of his case, the Tribunal was right in accepting the contention of the Department that the income accrued or arose or is deemed to accrue or arise in India and is assessable to tax as contemplated by S. 4(1) (c)? (3) Whether the Tribunal was right in the circumstances of this case in rejecting the contention of the Assessee (Applicant) that the income, profits and gains are chargeable to tax from the sale of sale in British India under S. 42 only? " The reference came up for disposal before a Bench of the Calcutta High Court consisting of Sen and Chunder JJ. The learned Judges gave the following answers to the questions: Question (1). The answer is in the affirmative so far as income-tax is assessed. Excess Profits Tax, however, cannot be levied on this basis, Question (2), The Tribunal was wrong in accepting the contention of the department that the income accrued or arose in India. The Tribunal did not hold that the income is income which should be deemed to accrue or arise in India. The part of the question which states that the Tribunal did so is not in accordance with fact. We find that the income, profits and gains must be deemed to have arisen or accrued in India so far as excess profits tax is concerned and that S. 42(3), Income-tax Act, applies to the levy of excess profits tax by virtue of S. 21, Excess Profits Tax Act. Question (3). The Tribunal was right in rejecting the contention that the income, profits and gains are chargeable to tax under S.42 only. They are also chargeable to income-tax as falling within the purview of S. 4 (l) (a), Income-tax Act as income received in India on behalf of the assesses company. In such a case S. 42, Income-tax Act would have no application." It will be noticed that the Agents succeeded in their contentions so far as they related to the assessment of Excess Profits Tax. The answers given by the High Court, however, went against them in so far as they related to the assessment of income-tax for both the assessment years.(5) The Agents thereafter made two applications to the High Court under S. 66A for leave to appeal to this Court in respect of the income-tax assessments for each of the two assessment years. The High Court certified that the cases were fit for appeal to this Court and granted leave to appeal and directed that the two appeals be consolidated. The Commissioner of Income-tax. West Bengal, however, has not preferred any appeal from that part of the judgment of the High Court which sets forth its opinion on the questions in so far as they relate to the assessment of Excess Profits Tax, This appeal is, therefore, concerned only with the answers given by the High Court to the questions in so far as they relate to the assessments of income-tax only.

Reasoning: (6) The first main contention urged by Mr. S. Mitra appearing in support of this appeal is that no income, profits and gains were received in India by or on behalf of the Association. He seeks to make good this contention on a variety of reasons all of which are not quite consistent with each other and some of which may even be mutuallyare bound to reject this reasoning as unsound on the same grounds on which the Privy Council rejected a similar contention in the case of Pondicherry Rly. Co. Ltd. (supra). In the language of Lord Macmillan the functions of the Agents far transcended the mere mechanical act of transmitting the sums collected by them to the Association in Egypt. They were entrusted with important duties on behalf of the Association namely, selling of the goods consigned to them for sale, handling the cargoes, issuing delivery orders, collecting rule proceeds and then to remit the same after deducting the expenses incurred by them and their own commission. The description of "an animated Post Office" can hardly apply to an agent of thisconcession that the Agents were entitled to deduct their disbursements and their commission out of the sale proceeds clearly implies that the sale proceeds belonged to the Association, for the Agents could not deduct the dues by the Association from something which did not belong to the Association. S. 217, Contract Act, gives to an agent the right to retain, out of any sum received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and such remuneration as may be payable to him for acting as agent. S. 221 also confers a right on the agent to retain the goods, papers and other property of the principal received, by him until the amount due to him for commission, disbursements and services in respect of the same has been paid or accounted for by him. The right of retainer and lien conferred on the agent does not make the amount received by the agent on behalf of the principal any the less the property of the principal. The principal is the full owner and has complete control over his properties in the hands of the agent subject only to the latters statutory right of retainer and lien. It follows, therefore, that the entire sale proceeds received by the Agents in the case before us were received on behalf of the Association and belonged to it subject to the rights of thesecond proviso to S. 4 (1), although it relates to the case of a person not ordinarily resident, also indicates that income, profits and gains which accrue or arise to such a person without the taxable territories can be included in his total income if they are brought into or received in the taxable territories and become chargeable to tax under S. 3 read with S. 4 (1) (a). For reasons hereinbefore stated this contention of Mr. Mitra must be rejected. It may be that the construction we are adopting in agreement with the High Court may operate harshly against non-resident in that income, profits and gains attributable to business operations outside India may also be brought to charge as having been received in India and such consequence may deter non-resident merchants from doing business in India. These indeed are serious considerations but the Courts have to construe the statute according to the plain language and tenor thereof and if any untoward consequences result therefrom it it for authority other than this Court to rectify or prevent theperson who comes within one or other of these three categories, may, under this section, be treated by the Income-tax Officer as agent of the non-resident and such person is for all the purposes of this Act to be deemed to be such agent. The third category refers to a person through whom the non-resident is in receipt of any income, profits or gains. The portion of S. 43 which refers to the person through whom the non-resident is in receipt of any income, profits or gains does not necessarily attract the provisions of S. 42, for the income profits and gains received by the person who is treated as agent under S. 43 may not fall within any of the several categories of income, profits or gains referred to in S. 42.The language of S. 43 will also attract the provisions of S. 40, for that section also contemplates a person who is entitled to receive on behalf of the non-resident any income, profits and gains chargeable under this Act and may even attract the provisions of S. 4 (1) (a). In our opinion there is no warrant for the contention that an appointment of a person as a statutory agent under S. 43 only attracts S. 42 for such appointment is for the purposes of of the Act and not only for the purposes of section 42.