TMI Blog1960 (8) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... nayagam were estimated at 19 per cent. of the purchase price and Vinayagam was assessed on that basis and by recourse to section 42(2) of the Income-tax Act. The gross profits Vinayagam made on the sale of goods in the year of account purchased from others besides his brother, Subramaniam, were estimated at 12 per cent. The difference of 7 per cent. was based on the assumption that the purchase price of ₹ 2,37,195 claimed to have been paid to Subramaniam was inflated. As Subramaniam was a non-resident the provisions of section 42(2) were applied and Vinayagam was assessed. Independent of the assessment of Vinayagam on his income, proceedings were taken against him under section 43 of the Act. That there was a business connection between Subramaniam and Vinayagam was obvious. After notice to Vianayagam and after hearing his objections his main plea was that the only business connection he had with his brother was that of a purchaser of the goods--the Income-tax Officer passed his order on September 14, 1950, declaring Vinayagam to be the agent of the non-resident principal, Subramaniam. Proceedings were then taken to assess Vinayagam as a statutory agent on the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinayagam, as the agent of the non-resident principal, P. Subramaniam Chetty of Pondicherry? (2) Whether the determination of the income of the non-resident principal at ₹ 33,396 even under section 23(4) is correct in law? In answering the first question it is wholly unnecessary to decide what was the volume of the turnover of Subramaniam's business that Vinayagam handled in India. That would be very relevant factor only in answering the second question. As pointed out in Ramnarayan Rajmal v. Commissioner of Income-tax [1953] 24 I.T.R. 442. a declaration under section 43 by itself does not impose any tax liability. The machinery for determining the tad liability of a person declared to be an agent under section 43 is that provided by section 42(1). What we have to decide under the first question is, whether there was material on which the Tribunal could sustain the finding that Vinayagam was the agent of Subramaniam. That question has to be answered in the affirmative. The material was set out in full in the remand report of the Income-tax Officer. The learned counsel for the assessee submitted that he had no opportunity to rebut the additional evidence taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant for answering the second question are as follows. In paragraph 2 of the statement of the case, the Tribunal recorded: He (Subramaniam) obtained import licences from the India Government and imported under such licences in his own name machinery, mill stores, etc., at Madras the other ports. He also imported similar good through East Asiatic Co., Madras. Some of these imports were taken delivery at Madras by Kulandavelu and Sarangapany, employees of the non-resident, where also sales were effected an cash received by them. It is not known how the imports through the other Indian ports were disposed of by the non-resident. In paragraph 10 of the statement of the case the Tribunal recorded: Their Lordships have been pleased to direct the Tribunal to set out in detail in this statement: (1) the value estimated or ascertained of the goods which the assessee purchased from the non-resident aforesaid; (2) the value estimated or ascertained of the goods which the assessee was said to have sold to third parties as the agent of the non- resident; (3) the value estimated or ascertained of the goods which the nonresident imported at Madras or other ports within Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nayagam be taxed under section 42(1) on the profits of the sales of the value of ₹ 2,37,195? (2) Can Vinayagam be taxed under section 42(1) on the profits of the sales of the rest of the imports, the estimated value of which was ₹ 5 lakhs minus ₹ 2,37,195? We are clearly of opinion that Vinayagam cannot be taxed twice over on the profits of the sales of the imported goods of the value of ₹ 2,37,195, one under section 42(2) and against under section 42(1). Before either statutory provision can be applied, there must proof of business connection between the non-resident, Subramaniam, and the resident, Vinayagam. Sections 42(1) and 42(2), however, are mutually exclusive in operation. The basis of the liability imposed on Vinayagam be recourse to section 42(2) was that the goods were had and that the income was his; only the true extent of that income had to be ascertained by applying the provision of section 42(2). The basis of the liability which section 42(1) imposes is that the income belongs to the non-resident. It is the non-resident's income that has to be taxed. The resident agent is only the agent and he merely represents the non-resident princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-resident under the various heads in section 42, with which he, as an agent, has no concern at all. If the income-tax authorities choose to tax a non resident in the name of his agent then in respect of each agency there must be a separate assessment because each agent in a separate assessee and treated as an assessee for all purposes under the Act. With reference to the sale of these goods Vinayagam was not the agent of Subramaniam. Quite independent of the feature that Vinayagam was the owner, on the short ground that when the goods were sold by Vinayagam they had ceased to belong to Subramaniam, and that there could therefore be no question of Vinayagam being the agent of Subramaniam for the sale of these goods, we have to hold that Vinayagam was not liable to be taxed on the profits of these sales under section 42(1). The decisive factor should be, was Subramaniam the owner of the goods when they were sold by Vinayagam? Subramaniam was not the owner. In effecting these sales Vinayagam was not the gent of Subramaniam. The profits of the sales did not accrue to Subramaniam. Neither Subramaniam nor Vinayagam as the agent of Subramaniam could be taxed under section 42(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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