The Superintendent Government Soap Factory Bangalore V. Commissioner Of Income Tax.

1942 Present: Howard C.J. and Soertsz J.

SUPERINTENDENT, GOVERNMENT SOAP FACTORY,
BANGALORE v. COMMISSIONER OF
INCOME TAX

122-D. C. (Inty.), Income Tax

Mysore State-Sale of goods of Government Soap Factory in Bangalore Profits earned in Ceylon-Liability to Income Tax-Position of Mysore State-Not a Sovereign State-Income Tax Ordinance (Capo 188). ss. 2 and 5 (1) (b) .

Profits derived from the sale in Ceylon of goods produced by the Government Soap Factory in Bangalore, which is owned by the State of Mysore, are liable to assessment for Income -Tax.

The State of Mysore is not an independent Sovereign State and it cannot invoke in aid immunities arising by virtue of International Law.

There is no principle of International Law precluding the Legislature from enacting legislation - imposing on a foreign State liability to pay income tax. On the other hand, unless the foreign State submits to the jurisdiction, there is no power or authority to enforce such liability.

THIS was a case referred to the Supreme Court by the Board of Review under section 74 of the Income Tax Ordinance. The main question referred to was whether the Government of Mysore was liable to pay Income Tax in respect of profits earned in Ceylon by the sale of goods produced by the Government Soap Factory in Bangalore"

H. V. Perera, K.C. (with him A. Gnanapragasam), for the assessee, appellant.-The assessee is in point of fact the Government of Mysore, which is a Sovereign State. In India, a foreign Government would be liable to pay income tax, but there is a special enactment enabling it. There is no such enactment in Ceylon. In relation to the Ceylon Government all other Governments are foreign. The question at issue has, therefore, to be examined according to certain general principles of International Law. Under International Law an ambassador enjoys various immunities and privileges. It has been held that a minister of a foreign country' cannot be sued against his will, although the action may arise: out of commercial transactions-Parkinson v. Potter[ (1885) L. R. 16 Q. B. D.152.]. See also Westlake - on International Law (7th ed.) pp. 266, 267 and Sundaram on Law of Income Tax in India (5th ed.) p. 41.

Section 5 of the Income Tax Ordinance (Cap. 188) is the primary charging section. The word" person" in that section is defined in section 2 as including a company or body of persons. "A body of persons" is also defined in section 2. Under section 7 (1) (a) a Government institution is exempt from tax, but the definition of "Government institution" in section 2 refers only to institutions in Ceylon. The Government of Mysore is not a " person" within the meaning of section 5.

" Person" can never include the Government of a country Bell's South African Dictionary p. 414,. Stroud's Dictionary. The position in Ceylon is quite in conformity with -the principle of International Law that a foreign State is not liable to taxation. See Oppenheim on International Law (5th ed.) p. 626.

H. H. Basnayake, Crown Counsel, for the Commissioner of Income Tax, respondent.-The question is whether there is a non-resident person for whom Hector Mather & Co. are agents. Section 34 of the Income Tax Ordinance enables the assessee to be taxed. The definition of "person" in section 2 is wide enough to include the Government of Mysore. There is no material in this Case as to how the Government of Mysore is constituted. But whether it is an individual or a body of persons it would be a "person ". For meaning of "person" see In re Ram Prasad [A. I. R. 1930, All. .389 at 391.] and Commissioner of Income Tax v. Sind Light Railway Co[ A. I. R. 1932 Sind. 189 at 193.], Ltd. a In India

Act III of 1926 did not create a new liability but only provided for the manner in which tax was to be levied from a State-Sundaram on Law of Income Tax in India (

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