Non-resident merchanting trade: UK trading operations and domestic sales agent support taxation through agency.

For taxation of a non-resident merchanting trade, the locality of the trade depends on where the substantive trading operations occur, not merely where the master arrangement was made. Because orders were received in England, goods were appropriated or manufactured there, delivery took place there, and payment was received there, the trade was exercised within the United Kingdom. The domestic company's standing arrangements, under which it held goods at the foreign company's disposal, sold only to approved customers on the foreign company's terms, and accounted for proceeds less cost and commission, were sufficient to support agency. The foreign company was therefore taxable on the basis that its trade was carried on in the United Kingdom through the English company as its agent.

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Issues: (i) Whether the non-resident company was exercising a trade of selling tyres to customers outside the United Kingdom within the United Kingdom for the purposes of tax under Schedule E of the Income Tax Act, 1918; (ii) whether the English company carried on that trade as the agent of the non-resident company.

Issue (i): Whether the non-resident company was exercising a trade of selling tyres to customers outside the United Kingdom within the United Kingdom for the purposes of tax under Schedule E of the Income Tax Act, 1918.

Analysis: The statutory inquiry was whether the trade was exercised within the United Kingdom, not whether the master arrangement between the foreign distributor and the overseas company was made abroad. The relevant trading operations occurred in England: orders were received there, goods were appropriated or manufactured there in response to those orders, delivery was effected there, and payment was received there. In a merchanting business, the place of sale is important, but it is not conclusive; the decisive question remains where the operations occur from which the profits in substance arise.

Conclusion: The trade was exercised within the United Kingdom and the issue was decided in favour of the Revenue.

Issue (ii): Whether the English company carried on that trade as the agent of the non-resident company.

Analysis: The course of dealing and the standing arrangements showed that the English company held goods at the disposal of the non-resident company, sold them to approved customers on terms imposed by the non-resident company, and accounted for the proceeds less cost and commission. That factual arrangement was capable of supporting a finding of agency, and the commissioners were entitled to treat the English company as a regular agent for the non-resident company in relation to the trade.

Conclusion: The English company was the agent of the non-resident company for the relevant trade and the issue was decided in favour of the Revenue.

Final Conclusion: The appeal failed because the taxing authorities were entitled to assess the foreign company on the footing that its trading operations were carried on within the United Kingdom through the English company as its agent.

Ratio Decidendi: For taxation of a non-resident merchanting trade, the locality of the trade depends on the substance of the trading operations as a whole, and a factual arrangement under which a domestic company sells goods in England on behalf of a foreign company may constitute trading within the United Kingdom through agency.

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