TaxTMI 
TaxTMI 
1957 (11) TMI 1
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....rchase of grain and other commodities. The appellant, acting as a commission agent of the respondent and its other constituents entered into several transactions of forward delivery at Hapur with Firm Pyarelal Musaddi 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 was Rs. 48,250 on which the Hapur firm paid Rs. 14,730-8-0 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. 9,314-13-4. On 20th May, 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 21st October, 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. The official liquidator on 18th March, 1944, applied under section 186 of the Patiala Companies Act, for a payment order for Rs. 12....
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.... 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. Aggarwal Chamber, 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 had held : "Before the 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 persons. It was therefore his entire income that was to be taken into consideration to assess his liability to income-tax." The appellant then applied for a certificate to appeal under article 133(1)(c) which was granted in the following terms : "The first 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 principle 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....
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....ted. The case seems to have proceeded on the basis of this agency in the courts below. The Hapur firm was employed by the appellant for forward transaction business of the respondent who has accepted the transactions entered into as also the amount of the profit accruing, on those transactions and is only disputing the amount of income-tax deducted, retained and paid on those profits. Under the law the Hapur firm would be an agent of the respondent for that part of the business of the agency as was entrusted to it and "privity of contract arises between the principal and the substitute." Section 194 of the Contract Act : De Bussche v. Alt. It is now necessary to refer to the relevant provisions of the Income-tax Act in force in the assessment year 1942-43 (hereinafter termed the Act). It is not clear as to what was the signification of the words "total earnings" used by the High Court because it is not used in the Income-tax Act which uses two expressions, "total income" and "total world income" in sub-section (15) of section 2 of the Act. The definition of "total income" comprises two things (i) the total amount of income, profits and gains referred to in section 4(1), and (ii)....
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....h person became an assessee in respect of the tax. Chapter V of the Act deals with "Liability in special cases" which includes agents. Section 40(2) dealing with the case of trustees or agents of a person non-resident in British India provided : "Where the trustee or agent of any person not resident in British India and not being a minor, lunatic or idiot (such person being herein after in this sub-section referred to as a beneficiary) is entitled to receive on behalf of such beneficiary or is in receipt on behalf of such beneficiary of, any income, profits or gains chargeable under this Act, the tax, if not levied on the beneficiary direct, may be levied upon and recovered from such trustee or agent, as the case may be, in like manner and to the same amount as it would be leviable upon and recoverable from the beneficiary if in direct receipt of such income, profits or gains, and all the provisions of this Act shall apply accordingly." Thus under this section which is essentially a machinery and an enabling section the tax to be realised from a non-resident could be levied upon the agent in the same manner as it could have been leviable upon and recoverable from a non-res....
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....section 42(1) to retain the estimate amount of income-tax payable on the amount of the respondent's 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 sections 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. 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 sections 40(2) and 42(1) of the Act and the proviso th....
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.... of isolated transactions based on Anglo-French Textik Co. Ltd. v. Commissioner of Income-tax, Madras, 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 Company. That was a case of a Danish firm resident in Copenhagen. 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 enquiries 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 the English purchaser the benefit of his experience in erecting it. The contracts between the firm and their customers were made in Copenhagen and the goods were shipped f.o.b. Copenhagen. It was held in that case that the firm did not exercise a trade within the United Kingdom within the meaning of Schedule D of section 2 of the Income-tax Act, 1853, and was therefore not assessable to income-tax. This deci....