The interpretation of the amended sections of the Madras District Municipalities Act, the definition of 'company', and the exemption of individual members from taxation influenced the court's decision.

Venkatasubba Rao, J.

1. The question that arises is, whether the dividends received by a person from a company can be treated as a source of income for the purpose of levying the profession-tax under the Madras District Municipalities Act. For the petitioner, it is contended that to levy a tax on a share-holder would amount to " taxing twice over", the company having been already assessed in respect of its profits which in effect belong to the share-holders. The Income Tax Acts, as is pointed out in Purshottamdas Harkisondas v. The Central India Spinning, Weaving and Manufacturing Co. Ltd. I.L.R.(1917) 42 Bom. 579 proceed upon the footing that the entire profits are subject to the common burden of Income Tax, which in truth is paid by the share-holders, although the payment is made by the company. That this is the true view, appears also from the following passage in the judgment of Romer, L.J.:

If such a company as we have to deal with pays Income Tax on its profits, the Income Tax, as has been pointed out, is payable out of the profits, and is part of the profits; and if the profits, after deducting the Income Tax, have subsequently to be distributed amongst the members of the company, that Income Tax is not payable again by those members so far as they receive their share of the profits, because the Income Tax is to be taken as having been paid out of their profits, and on their behalf.

2. Attorney-General v. Ashton Gas Co. (1904) 2 Ch. 621.

3. Although no doubt, as the petitioners Counsel contends, this principle is recognised for the purpose of the levying of the Income Tax, I do not think I shall be justified while dealing with this case, in relying upon any such general principle. Different considerations may apply to the levy of the profession-tax and therefore I shall base my judgment on a construction of the Sections of the Act in question.

4. First, Section 92 of Act V of 1920 which provided for the levy of a Companys tax, was by the Amendment Act (Madras Act X of 1930) deleted and Section 93 is by the same new Act so amended as to take in companies also. The result is, that companies as well as individuals are now liable to pay profession-tax, the distinction between companies tax and profession-tax haying been abolished. But what is important to note is, that when companies were before the present amendment liable for what was then termed companies tax, Section 93 expressly exempted individual members from taxation in respect of their interest in the company. That result was achieved by the qualifying phrase "not liable to the companies tax" being inserted after the words "every person". I do not think that in enacting the present Section (Section 93 as it now stands), the Legislature has shown any intention to depart from that rule.

5. Secondly, the definition of "company" has been by the Amendment Act (Madras Act X of 1930) so altered as to make it comprise or include a firm, i.e., a partnership. Under Section 93 a firm (the word company including thus a firm also) has to pay profession-tax in respect of its profits and the scheme of the Act shows that when profession-tax is levied on a firm, the individual members thereof are not in respect of those same profits again liable. Section 94 enacts inter alia that the profession-tax leviable from a firm may be levied from any adult member thereof. A Bench of this Court held, construing provisions similar to these, though of a different Act (City of Madras Municipal Act, Act I of 1844), that a parnership trade is a single trade or business for the purpose of taxation and that there can be but one tax levied as profession-tax when several persons jointly carry on one trade or business. As is observed in that judgment:

It would hardly be reasonable that the profits and extent of a business remaining unchanged, the amount leviable from the firm should vary with the number of the members." Davies v. President of the Madras Municipal Commission I.L.R.(1890) 14 Mad. 140.

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