TMI Blog1944 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... It was contended on behalf of the Government (i) that the suit was not maintainable, and (ii) that the impugned provisions of the Income-tax Act were intra vires the Indian Legislature. The plaintiff-the Raleigh Investment Co., Ltd.-is a joint-stock company incorporated under the English Companies Act, having its registered office at 13, Athol Street, Douglas, in the Isle of Man, and its in office at Egham, Surrey, England. It has no business premises in India, but holds the bulk of the shares in eleven companies which carry on the business of manufacturing and selling tobacco and cigarettes in India. Two of these companies, referred to in the judgments of the High Court as rupee companies , are incorported in India under the Indian Companies Act and have their registered office and business head-quarters at Calcutta. The nine remaining companies, referred to as the sterling companies , are companies registered under the English Companies Act. They are controlled in London, where the Boards of Directors sit, the shares registers are situate and dividends are declared. The Boards in London have constituted Boards which are situate in India. The business in India, where all prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax paid by the company. But as the basis of the levy of super-tax on the company, is, as stated above, different from the basis of the levy of super-tax on individuals, no such deduction as is contained in Section 49B is provided for in respect of super- tax payable on dividends received from companies. Where the recipient of the dividend was resident outside British India, it was held by the Bombay High Court in 1931 in Commissioner of Income-tax v. Goldie [1931] I.L.R. 55 Bom. 734. , that dividends received by him outside British India from companies doing business in British India but registered in the United Kingdom and having their share register there could not be assessed to income-tax in British India, under the Indian Income-tax Act, as it then stood. To meet this situation, certain amendments were inserted in the Act in 1939 and these are the provisions now impugned. It having been enacted by Section 3 that the tax shall be charged in respect of the total income of the previous year, Section 4 proceeds to define the total income . In respect of income not received or deemed to be received in British India by or on behalf of the assessee, the Act creates a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. On both points, the High Court overruled the defendant's contentions, on the first point, by a majority and on the second point, unanimously. There were other plea raised, but it is unnecessary to refer to them here, as they have not been argued before this Court. The only objection to the maintainability of the suit urged before us was based on Section 226 of the Constitution Act, which runs as follows:- Until otherwise provided by Act of the appropriate legislature, no High Court shall have any original jurisdiction in any matter concerning the revenue, or concerning any act ordered or done in the collection thereof according to the usage and practice of the country or the law for the time being in force. It was contended on behalf of the Government that the present suit fell within the description matter concerning the revenue in the above provision. Lodge, J., was of the opinion that this objection should prevail; but the Chief Justice and Mitter, J., held that a matter could be held to concern revenue only when the law under which the revenue was claimed was itself valid; and as they came to the conclusion that the relevant provisions of the law were in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned till after, and be made, to depend upon, the decision of the case on the merits. The learned Judges say that where the law imposing the revenue is itself illegal, a dispute in relation to it cannot be said to concern the revenue. This argument, if pursued to its logical limits, will prove too much. If even under a valid revenue law a person who is not liable to be assessed is sought to be assessed to revenue, that claim may well be des- cribed as an illegal claim against him. Again, there may be a dispute between a taxpayer and the revenue authorities as to whether the tax- payer has or has not paid what was due from him and if on investigation it should be found that he had paid what was claimed as still due, the claim as against him for further payment might well be described as illegal. If in such cases the Court should be called upon to decide whe- ther the claim was well founded in law before applying the bar under Sec- tion 226, the provision would be practically rendered nugatory. In Spooner v. Juddow [1845-51] 4 M.I.A. 353 , the Judicial Committee held that the section would apply to all cases in which parties bona fide and not absurdly believed that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -51] 4 M.I.A. 358 . In the only reported case where the application of Section 226 had to be con- sidered on an allegation that the revenue law itself was illegal, a Special Bench of the Bombay High Court held that before the section can apply, we must determine that the tax which is challenged is legal. [See Sir B. Jeejibhoy v. The Province of Bombay [1940] I.L.R. 1940 Bom. 58. ] . There is no discussion of the question in that judgment, apparently because the point was not seriously contested by the Advocate-General in that case. The authority of that pronouncement does not in any event carry us further that the considered judgment of the Calcutta High Court in the present case. Mitter, J., refers to the analogy of cases where a Court has power to determine what are called jurisdictional facts, if the jurisdiction of the Court depends on the existence of certain facts. In such cases, the jurisdictional or exclusionary provisions will ordinarily be of a qualified character and indicate what facts must be found before the jurisdiction can attach or be excluded. But as we read Section 226, the bar is absolute, if the dispute concerns revenue, taking the word revenue in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contended that the legislature had thus attempted to tax only such income as had its source in British India and that this was clearly within the territorial jurisdiction of the British Indian Legislature. Our attention was drawn to the observations of Lord Herschell in Colquhoun v. Brooks [1889] 14 App. Cas. 493 at p. 504. , where the existence within any particular country of that from which the taxable income is derived is spoken of as a territorial limitation quite as much as the residence there of the person whose income is to be taxed. Strong reliance was also placed on certain decisions of the High Court of Australia, where, dealing with provisions similar to the impugned provisions of the Indian Act or provisions of even wider import, the High Court of Australia has held that they were not invalid on the ground of extra-territorial operation On behalf of the respondent, it was contended that in a case like the present the source of income to the plaintiff-company could not be regarded as situate in British India. It was argued that though the sterling companies might earn their profits by business carried on by them in British India, there was no connection between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Taxation [1918] 25 Com. L.R. 183 and Murray v. Federal Commissioner of Taxation [1921] 29 Com. L.R. 134. , are practically on all fours with the present case. In both the cases, the Court was confronted with the very argument that has been advanced on behalf of the plaintiff here, namely, that though the source of the company's income was Australian, that of the share-holders was not, because, in the words of Fletcher Moulton, L.J., in Gramophone and Typewriter, Ltd. v. Stanley(1), the share-holder did not carry on the business of the company, but was only entitled to the profits of the business to a certain extent fixed and ascertained in a certain way dependent on the constitution of the corporation.This argument was overruled by all the learned Judges. In Nathan's case [1918] 25 Com. L.R. 183 , Isaacs, J., delivering the judgment of the Court, observed that the question as to the source of the share-holder's income was a question of fact to be determined on practical grounds. In both the cases, the Court held that though no individual cooperator could lay claim to any portion of the profits made by the company, every corporator had an intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [1913] 6 Tax Cas. 1, 163. that profits of the company during the period in question were for the purpose of taxing the company to be treated as earned here, could not now be heard to say that for the purpose of taxing the share-holders they were earned aboard. The source of income was the same in both cases. (The italics are ours). Here, the Lord Chancellor clearly treats the income of the company and the dividend income of the shareholders as derived from the same source . In Scottish Union National Insurance Co. v. New Zealand Australian Land Co. [1921] 1 A.C. at p. 178. , Viscount Haldane, dealing with a Scottish company doing business in Australia and New Zealand, says what remained as net balance was remitted to Scotland to be divided as profit and in the same case (on p. 182) Viscount Finlay states: If this colonial tax had not existed, so much more would have been available as profits from the business in the Colonies for division among the share-holders of the company. True, when a divided is declared it becomes a debt for which the shareholder can sue the company, but that is not a picture of the whole transaction. The company can declare dividends on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wales and adopted that as the ground of it interference, the validity of an enactment would not be open to challenge. The question was more fully discussed in the Broken Hill South case [1937] 56 Com. L.R. 337. Latham, C.J., recognised that the case was perhaps an extreme one. It is sufficient for our present purpose to take the principles accepted by Rich, J., in his dissenting judgment. The learned Judge observed (on p. 361): I do not deny that one any connection with New South Wales appears, the legislature of that State may make that connection the occasion or subject of the imposition of a liability. But, he added, the connection with New South Wales must be a real one and the liability sought to be imposed must be pertinent to that connection. On the facts of the particular case, he dissented from the conclusion of his brethren because he thought that in respect of the interest sought to be assessed in that case, there was no necessary relation between it and the existence in New South Wales of some item of property comprised in a security to which directly or indirectly the taxpayer might resort if the interest was not paid. As he said on p. 362, the tax was there la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempt is to tax income and not the corpus and the question to be considered is the source of that income , it seems to us legitimate to take into account the place where the business from which the income is derived is in fact carried on and not to treat the situs of the shares in the eye of the law as concluding the matter. In London and South American Investment Trust v. British Tobacco Co. (Australia) [1927] 1 Ch. 107 , the learned Judge had to deal with a very limited question, namely, the effect which a provision in an Australian enactment could have on the rights and liabilities of parties in respect of a debut arising under an English contract. On this point, the learned Judge said: If the debt arises under an English contract and is an English debt, I do not think [1938] A.C. 524 at p. 555. that it is property in respect of which the Commonwealth Legislature has power to impose taxation upon the plaintiff company or (2) that it is property, the incidence of which can be altered by the Commonwealth Legislature (page 119). The effect and the implications of this pronouncement have been variously interpreted. (See Ratcliffe and McGrath, Australian Income-tax Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant-company, the contract which regulates their relations is an English contract and the dividend payable to it by the defendant-company is a debt recoverable and locally situate in England and that it is no answer to the claim for the dividend that the defendant-company has been compelled by Australian law to make certain payments to the Federal Government of Australia. Dealing with the powers of the Australian Legislature, the learned Judge said that its powers of taxation do not extend to authorize the imposition of taxation upon a person who is not resident or domiciled within the Commonwealth, in respect of property which is not situate within the Commonwealth. (The italics are ours). To the proposition thus stated, no exception can be taken; the learned Judge did not purport to deal with the question of the source of the income at all. It is important to see how the learned Judge applied the proposition stated by him. His differentiation between dividends received from the Australian Pastoral Company and dividends received from the defendant-company is significant, in the light of the circumstance stressed by him in the course of the argument on p. 110 and repeated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Where however the meaning and intent are plain, the presumption or rule of construction must give way. Even in the case of enactments passed by a non sovereign legislature, the rule of presumption or construction is equally relevant, where the language of the legislative is general. But where the language is plainly extra-territorial in it operation, the question becomes one as to the authority of the legislature and the validity of the law. Ashbury v. Ellis [1895] A.C. 339 establishes that even in the case of a non-sovereign legislature, nothing turns on the question whether or not the Courts of another country will give effect to a law passed by that legislature or to decisions given under that law. So far as revenue laws are concerned, it is a well-established rule of Private International Law that the revenue laws of one country will not be enforced by the courts of another country. Likewise, the practical difficulties that may arise in enforcing the extra-territorial provisions of a taxing statue are not by themselves a ground for invalidating them. The pertinent question is whether the particular legislature is authorised by the constitution Act creating the subordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down as early as The Queen v. Burah [1878] 3 App. Cas. 889 and Hodge v. The Queen [1883] 9 App. Cas. 117. , namely, once it is found that a particular topic of legislation is among those upon which the Dominion Parliament may competently legislate as being for the peace, order and good government of Canada or as being one of the subjects enumerated in Section 91 of the British North America Act, their Lordships see no reason to restrict the permitted scope of such legislation by any other consideration than is application to the legislation of a fully sovereign State. In British Coal Corporation v. The King [1935] A.C. 500 reference was again made to Hodge v. The Queen [1883] 9 App. Cas. 117. and it was added: In interpreting a constituent or organic statute, that construction most beneficial to the widest possible amplitude of its powers must be adopted. Speaking of the limitation imposed by the doctrine forbidding extra-territorial legislation the Lord Chancellor observed that that was a doctrine of somewhat obscure extent. Though the Statute of Westminster is not applicable to India, the Constitution Act of 1935 has to be interpreted in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alt with in sub-section (2), namely, without prejudice to the generality of the powers conferred by the preceding sub-section and also by the tenor of the sub-section which only purports to obviate objection on the ground of extra-territorial operation. If it should be asked what necessity there was, in this view, for specifying particular cases in that sub-section, the answer would be that it was probably though that the simple omission of the corresponding provisions found in the Act of 1915 might lead to the impression that the power to deal with those matters had been taken away from the Federal Legislature. Even the language of Section 99(1) involves some limitation and it might have been considered safer to avoid all risk of any difference of opinion as to its scope, so far as the topics specified in sub-section (2) were concerned. That the Federal Legislature's power of extra-territorial legislation is not limited to the case specified in clauses (a) to (e) of sub-section (2) of Section 99 appears clearly from entry No. 23 of List I of the Seventh Schedule, relating to fishing and fisheries beyond territorial waters. It would not be right to derive the power to legis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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