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

1. This is an appeal brought pursuant to a certificate under Art. 133 (1) (c) of the Constitution from the judgment and order of the Division Bench of the erstwhile Pepsu High Court pronounced on March 10, 1953, modifying in appeal the order of the Liquidation Judge.The fact 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 its other constituents entered into several transaction of forward delivery at Hapur with Firm Pyarelal Musadddi Lal, who were carrying on commission agency business at Hapur (and will hereinafter be termed the Hapur firm). The total profits of the transactions entered into by the appellant with the Hapur firm were Rs. 48,250 on which the Hapur firm paid Rs. 14,730-8 as income-tax. The profits accruing on the transactions entered into on behalf of the respondent amounted to Rs. 29,275-2-6 on which the proportionate income-tax claimed to have been paid was Rs.On May 20, 1943, the appellant was ordered to be wound up and Udmi Ram Aggarwal, a pleader of the old Patiala High Court was appointed its liquidator. The list of contributories was settled on October 21, 1943, and the respondent was placed on that list. Though this matter was challenged in the appeal before the High Court it is no longer in controversy between the parties.3. The Official Liquidator on March 18, 1944, applied under S. 186 of the Patiala Companies Act, for a payment order for Rs. 12,204-12-3 against the respondent and in support of his claim he filed, with this application, copies of the respondents account in the books of the appellant showing how the amount claimed was due from the respondent. This amount included the sum of Rs. 9,476-13-0, on account of income-tax paid by the Hapur firm for and on behalf of the respondent on the profits of the forward transactions at Hapur and the commission of the Hapur firm. The respondent raised several objections and pleaded inter alia that the Hapur firm with whom the appellant had entered into forward transaction had no right to demand any income-tax from the appellant as no profit had accrued to the appellant which was acting as a commission agent and "was only entitled to the commission". It was also pleaded that as on the total number of transactions entered into between the respondent and the appellant there was a loss, the respondent was not liable to pay any income-tax and that the respondent had no taxable income in the year under dispute or in any other year. On May 23, 1944, the respondent filed an application in which it was submitted that the Hapur firm, who were agents of the appellant at Hapur, had retained Rs. 14,730-8-0, "which was in trust with them under S. 42 of the Income-tax Act" and prayed 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.4. After evidence was led by both parties the payment order was made by the learned Liquidation Judge on January 18, 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 respondents 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 of Patiala in Panna Lal Mohar Singh v. Aggrawal Chamber, C. A. No. 60 of 2005-S. (A), that the Official Liquidator of the appellant was not entitled to claim the amount of income-tax paid by the Hapur firm. The Judicial Committee Ijlas-khas hadthe liability of the contributory can be fixed it must be shown that his income was such on which income was assessable ...It is not denied that the contributory was carrying on other transactions in India as it stood before partition through other person. It was therefore his entire income that was to be taken into consideration to assess his liability toappellant then applied for a certificate to appeal under Art, 133 (1) (c) which was granted in the followingfirst question is whether a decision given by one Judge of the Judicial Committee can be regarded in law as a decision of the Committee. The second is whether the principal laid down by the learned Judge of the Judicial Committee that the Aggarwal Chamber of Commerce was not entitled to recover from its clients the proportionate share of the income-tax paid by it unless it as shown that the total amount of income of the client was assessable to income-tax, was sound.Accordingly we allow the petition and grant the certificate.

Reasoning: 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.