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SUPREME COURT OF INDIA
16th January 1953
MAHAJAN, S.R. DAS, BOSE AND BHAGWATI, JJ.
Turner Morrison and Co. Ltd. - Appellant
Versus
Commr. of Income- tax, West Bengal - Respondent.
Appeal No. 41 of 1952,
Advocates appeared
Shri S. Mitra, Senior Advocate (Shri S. N. Mukherji, Advocate, with him), instructed by Shri P. K. Mukherji, Agent - for Appellant; Shri C. K. Daphtary, Solicitor-General for India (Shri P. A. Mehta, Advocate, with him) instructed by Shri G. H. Rajadhyaksha, Agent - for Respondent.
Messrs. Port Said Salt Association Ltd. was a company incorporated in the United Kingdom with its registered office there, but carried on business in Egypt of salt which was sent for sale in India to Messrs. Turner Morrison & Co. Ltd. All shipping operations, i.e. chartering of steamer, loading, insurance etc. were effected in Egypt by the Association who sent the documents to Messrs. Turner Morrison and Co. Ltd. their agents for this purpose. The agents effected sales in India through brokers at the best price obtainable at or above the prices approved by the Association. The agents were paid commission on sales. All handling of the cargoes when they arrived at Calcutta and the necessary disbursements in connection therewith were carried out and made by the agents. The sale proceeds were also collected by them and credited to the account kept in their own name. After deducting the expenses including their commission, the balance was remitted by the agents to the Association in Egypt. On these facts the Income-tax Officer treated Messrs. Turner Morrison & Co. Ltd. as the agents of the Association under S. 43, Income-tax Act, and assessed them to income-tax under S. 4 (1) (a), or, alternatively, under the first part of S. 4 (1) (c). The agents contended that assessment should have been made under S. 42 of the Act.
Held: (1) 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 the sale 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 this description.
(2) The right of retainer and the 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 the Agents.
(3) When the gross sale proceeds were received by the Agents in India they necessarily received whatever income, profits and gains were lying dormant or hidden or otherwise embedded in them. Of course, if on the taking of accounts it be found that there was no profit during the year then the question of income, profits and gains would not arise but if there were income, profits arid gains, then the proportionate part thereof attributable to the sale proceeds received by the Agents in India were income, profits and gains received by them at the moment the gross sale proceeds were received by them in India and that being the position the provisions of S. 4 (1) (a) were immediately attracted and the income, profits and gains so received became chargeable to tax under S. 3 of the Act.
(4) Section 42 only speaks of deemed income. The whole object of that section is to make certain income, profits and gains to be deemed to arise in India so as to bring them to charge. The receipts of the income, profits and gains being one of the tests of liability, where the income, profits and gains are actually received in India it is no longer necessary for the revenue authorities to have recourse to the fiction.
(5) Section 4(1) (a) in terms is, unlike Ss. 4 (1) (b) or 4(1) (c), not Confined in its application, to any particular category of assessees. Section 4(1) (a) is general and applies to a resident or a non-resident person. The Second 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).1
(6) 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 the statutory agent under S. 43 only attracts S. 42 for such appointment is for all purposes of the Act and not only for the purposes of section 42. - Agent of non-resident Company-Person effecting sales in India of goods manufactured outside India whether-Liability for profits received in India from sales-Indian Income-tax Act (XI of 1922), Ss. 4(1) (a), 4(1) (c), 42, 43. - Contract Act (1872), Ss.217, 221-Income received by foreign Association through its agent-Income-tax Act (1922), S. 4 (1) (a).
Held: 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 of goods sent by. It foreign Association as received by its agents in India are received on behalf of the Association ,and belong to it subject to the rights of the agents.
Judgement
S. R. DAS J- This appeal arises out of six references made by the Calcutta Bench of the Income-tax Appellate Tribunal under Sec. 66(1) Income-tax Act, two of them relating to the Income tax assessment years 1943-44 and 1943-45 and the remaining four relating to Excess Profits Tax for the chargeable accounting periods on 31st December of each of the years 1940, 1941, 1942 and 1943 respectively.
2. The relevant facts appearing in the statements of the case are as follows: 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 s
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