J. A. P. Zebedee Fernando & Co. V. Commissioner Of Inland Revenue

1961 Present: Sansoni, J., and Tambiah, J.

J. A. P. ZEBEDEE FERNANDO & CO., Appellant, and
 THE COMMISSIONER OF INLAND REVENUE, Respondent

S. C. 7/60-Income Tax Case Stated BRA/281

Income tax-Profits of a non-resident person carrying on a wholesale business in Ceylon-Computation-Assessment of income tax due from such profits- Income Tax Ordinance, ss. 34 (1), 36 (3), 37, 65 (2) (b).

        Where a person in Ceylon, acting on behalf of a non-resident person, sells by wholesale any property manufactured by the non-resident person outside Ceylon, proviso (a) to section 34 (1) of the Income Tax Ordinance is applicable and for the purpose of income tax, the profit made by such sale is deemed to be not more than the profit which might reasonably be expected to be made by a merchant selling the property by wholesale in Ceylon. The merchant contemplated in the proviso to section 34 (1) is not a merchant who buys from a non-resident manufacturer and sells the commodity in Ceylon, but any merchant who  sells it by -wholesale in Ceylon.

    Accordingly, evidence of the rate of commission paid to an agent cannot be used as a basis of measure of the profits of a merchant contemplated in proviso (o) to section 34 (1).

     CASE stated under section 74 (1) of the Income Tax Ordinance.

                H. V. Perera, Q.C., with S. Ambalavaner, for the Assessee-Appellant.

              A. Mahendrarajah, Crown Counsel, with M. Kanagasunderam, Crown Counsel, for the Commissioner of Inland Revenue, Respondent.

Cur. adv. vult.

February 15, 1961. TAMBIAH, J.-

           This is a case stated for the opinion of this Court by the Board of Review under section 74 (1) of the Income Tax Ordinance. The Appellant-assessee is an agent in Ceylon for a large number of non-residents who carry on a business in Ceylon in the sale of dry fish by wholesale. It is common ground that the dry fish is made by these non-residents outside Ceylon. The Appellant as agent for the non-resident consignors sold by wholesale the consignment of dry fish received in Ceylon and remitted the proceeds of the sale to the consignors abroad, and received a commission on such sales, which ranged from 4 per cent, to 6 per cent.

The assesses has shown the amounts he has received by way of commission in the returns sent by the partners of the business, but none of the non-resident consignors of dry fish carrying on business in Ceylon have produced any books of accounts or other documents from which the taxes due could be assessed.

It is also common ground that the Commissioner of Income Tax, acting under section 37 of the Income Tax Ordinance, up to and including the year of assessment 1953-54, assessed the profits of the non-resident consignors at 5 per cent of the turn over of the business in Ceylon.

When the assessment made under section 37 was increased in respect of the year of assessment 1953-54 five of the non-resident consignors of dry fish appealed to the Commissioner of Inland Revenue against the increased assessment. At the hearing of the appeal against the increased assessment for the year 1953-54, the Commissioner for Inland Revenue made the following order :-

" Assessment to be revised estimating profits at 5 per cent of the turn over as previously. Separate assessments to be issued for non-residents with income over Rs. 10,000/- and for those with income below Rs. 1,000/-. I inform appellants that as from the year of assessment 1954-55 profits will be estimated at 7 per cent and for subsequent years at 10 per cent of the turn over."

On 1.4.54 the Assessor sent a circular to all the agents of the non-resident consignors carrying on business in Ceylon stating that unless detailed accounts were submitted he would assess the profits at the rate of 7 per cent and 10 per cent of the turn over for the assessment years 1954-55 and 1955-56 respectively. A

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