TMI Blog1979 (3) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... e agent in specified territories, including India, in respect of dyestuffs manufactured by the assessee in the United Kingdom on inter alia, the following terms and conditions : (a) The assessee would supply to the Indian company stocks of its products to be handled and stored by the Indian company as instructed by the assessee. (b) Such consignment stocks would be held by the Indian company as agents for the assessee and, until sold in accordance with the provisions of the agreement, would remain the property of the assessee and the Indian company would hand over to the assessee the stock remaining in its possession on determination of the agreement. (c) The assessee would pay or discharge all import duties and transport expenses for the delivery of the consignment stocks to the Indian company including expenses incurred for landing, warehousing, storing, mixing, repacking and insuring such stocks. (d) The consignments would be stored in a manner indicating that they were the property of the assessee. (e) The assessee would from time to time notify the Indian company the prices at which the products were to be sold. (f) The Indian company would render to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian company to be the place of business of the assessee and held that the assessee came within the definition of a company in s. 2(h) of the W.T. Act, 1957, and, accordingly, was assessable to wealth-tax. The assessee preferred appeals against the said assessments. Before the AAC the assessee filed two affidavits affirmed by the chairman of the Indian company, respectively, on the 22nd February and the 8th July, 1961. It was alleged in the affidavits, interalia, as follows : (a) No godowns were owned or taken on lease by the assessee for storing its products. (b) The assessee did not own nor had it taken on lease any premises for maintaining any office in India. (c) The assessee had no licence to use the premises of the Indian company. (d) The assessee was under no obligation to consign any goods to the Indian company and it was open to the Indian company to reject any offer of goods from the assessee. (e) The assessee carried on its own business in the United Kingdom in which the Indian company had no hand or say. (f) The assessee had no place of business nor any employee in India. (g) The assessee did not deliver to the Registrar of Joint Stock Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand that the expression " has a place of business in India " was not synonymous with the expression " carries on business in India ". If there was any place of business in India where the business of the assessee was carried on, i.e., where the goods of the assessee were sold, the assessee could be said to have a place of business within the meaning of s. 2(h) of the W.T. Act, 1957. It was immaterial who carried on such business and it was not necessary that the assessee itself should carry on the business. A foreign company would be deemed to have a place of business in India if its goods were sold in India either by a selling agent or even by an " adatiya " on consignment basis. Construing the definition of a company under s. 2(h) of W.T. Act, 1957, and the agreement between the assessee and the Indian company, the Tribunal held, inter alia, as follows : (a) For a foreign company to have a place of business in India it was not necessary that it should either own or possess any particular business premises. (b) It was also not necessary that the company itself should carry on business directly in India. (c) It would be sufficient if a foreign company sold its goods in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountry through the agent. Mr. Ginwalla contended that if the aforesaid tests were applied in the facts of the instant case it followed that the assessee could not be said to be present in India. The assessee did not own or occupy any premises and did not employ any person in this country. The assessee did not display its name anywhere in India nor was its name printed in the letter head of the Indian company. Transactions in India were entered into by the Indian company for itself and not as representing the assessee. The Indian company had no general power to act on behalf of the assessee. On the other hand, the assessee was completely free to deal directly with any customer in India by way of export which would not tantamount to carrying on business in India. The conclusions, according to Mr. Ginwalla, which followed were that the English company was not found in India and that basically and substantially the Indian company was carrying on its own business in India. Goods in the custody of the Indian company were no doubt owned by the assessee but the transactions therewith were those of the Indian company. The Indian company neither made any contract nor did it sell any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or process preceding legal action on foreign companies or corporations, the question involved being under what circumstances such companies or corporations would be held or deemed to reside in a country for the purpose of such service. The second category of cases deals with the problem as to when a foreign company can be said to exercise trade and carry on business so as to be liable to pay income-tax in the country where such trade is exercised or business is carried on. In the third category come cases deciding under which circumstances a principal company and its subsidiary can be said to be identified as one. The decisions cited are dealt with in their respective categories chronologically as hereafter. (a) Saccharin Corporations Ltd. v. Chemische Fabrik Von Hyden Aktiengesellschaft [1911] 2 KB 516 (CA). The facts in this case were that defendants, a German company, had appointed a sole agent in England. The agent rented an office in and obtained orders from England for the defendant's goods and in some cases entered into contracts in the defendant's name for sale of such goods without the prior approval of the defendant. In some cases, orders were executed by deliverin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the orders, the sole agent signed the contracts with the purchaser as agents of the defendant. Goods were shipped direct from Sweden to the purchaser. The sole agent in some cases received payment in London from the purchasers which were remitted to the defendant after deduction of agreed commission. On such facts, it was held that the defendants were not carrying on their business at the agent's office at London so as to be a resident within the jurisdiction of the English courts and the service of a writ of summon at the office of the sole agent in London was not good service as against the defendant. The relevant observations of the Court of Appeal are as follows : " BUCKLEY L. J.---(The London office) is really only an address from which business is from time to time offered to the foreign corporation ; the question whether any particular business shall or shall not be done is determined by the foreign corporation in Sweden and not by any one in London. In my opinion, the defendants are not ' here ' by an alter ego who does business for them here, or who is competent to bind them in any way. They are not doing business here by a person but through a person." " P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourts and a writ served on the agent's office at London was not validly served against the defendants. (e) Re Tovarishestvo Manufactur Liudvig Rebenek [1944] 2 All ER 556 (Ch D). In this case, a textile company incorporated in Russia used to obtain supplies of machinery and raw materials from England for a considerable period during which one of its directors visited England every year to maintain contact with the suppliers, to place orders, to enter into contracts and generally to conduct the affairs of the company in the United Kingdom. On such visits the said director used to stay at a hotel in Manchester and used the same as a regular place of business of the company and all correspondence were conducted from the said hotel. The company also had a banking account in England. In 1917, the company was dissolved and ceased to exist in Russia. Some creditors sought to wind up the company in England. In the course of realisation of the assets it was contended by a debtor that inasmuch as the company did not have an established place of business within the jurisdiction of the English courts, the liquidation proceedings were irregular and that the company could not be wound up. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broke out in both the vessels and the Yugoslavian tanker subsequently drifted into a Turkish passenger vessel. As a result, all the three vessels became constructive total loss. The charterer and sub-charterer of the Turkish vessel instituted a suit in England against the owner of the Greek tanker, a Liberian company, and also an English company which was responsible for the day-to-day management of the Greek tanker at the relevant time. The Liberian company contended that they were not within the jurisdiction of the court and that the address of the English company was only its accommodation address. It was held on facts that the real place at which the business of the Liberian company was carried on was the London office of the English company. Howson J. observed in his judgment as follows : " Let us look at the facts and not the technicalities of the situation. If the day-to-day business of operating and controlling this ship was not in fact carried out by the second defendants (the English company) I know not who did it ...... In my view, on all the facts of this particular case, the real place in which the business of the first defendants (the Liberian company) was carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following observations from the judgments of the Law Lords were relied on : " LORD HERSCHELL.---I think there is a broad distinction between trading with a country, and carrying on a trade within the country.... If all that a merchant does in any particular country is to solicit orders, I do not think he can reasonably be said to exercise or carry on his trade in that country. What is done there is only ancillary to the exercise of his trade in the country where he buys or makes, stores, and sells his goods." " LORD WATSON.---There is, in my opinion, a very broad distinction between the case of a foreigner making contracts in England with his English customers for the sale of his Wines, either personally or through a representative, and the case of his making similar contracts with these customers in his own country." (b) Crookston Bros. v. Furtado [1910] 5 TC 602. The facts in this case were that a French company, which had phosphate mines in Algeria, appointed agents in the United Kingdom who had authority to sell phosphates produced by the French company without reference to the principal at or over minimum prices stipulated. The documents showed that the sales were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... English company but did not appear on the latter's invoices. The transaction with the Dutch company formed a small part of the entire business of the English company. The English Court of Appeal held that the facts as above constituted evidence on which the Commissioner could find that the Dutch company was carrying on business within the United Kingdom. The following observations of Lord Atkin in his judgment were relied on : " It appears to me that a foreign principal may well send his goods to this country to be sold as part of his trade for and on his behalf, and yet so conduct the business that the property in the goods for the purpose of the exercise of the trade passes to the agent." (e) F. L. Smidth and Company v. Greenwood (1921] 3 KB 583 ; 8 TC 193, 204 (CA). The facts in this case were that a Danish firm, resident in Denmark, manufactured for export machinery for cement, brick work, etc. They had an office in London in charge of a qualified engineer employed by them, whose function was to advise prospective purchasers, receive enquiries, send to Denmark particulars of the requirements of the purchasers and samples of materials to be handled. He was also available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the London firm for a further amount of sugar. This order was telegraphed by the London firm to the Java firm which procured and delivered that quantity and also an extra quantity which was accepted by the Government. The London firm carried on negotiations and signed the contract subject to the approval of the Java firm as regards the payment clause. On these facts, it was held by the House of Lords that the Java firm had exercised a trade in the U.K. in all the above transactions. Viscount Cave observed in his judgment as follows : "...... in the case of a merchant's business, the primary object of which is to sell goods at a profit the trade is (speaking generally) exercised or carried on (I do not myself see much difference between the two expressions) at the place where the contracts are made. No doubt reference has sometimes been made to the place where payment is made for the goods sold or to the place where the goods are delivered, and it may be that in certain circumstances these are material considerations ; but the most important, and indeed the crucial question is, where are the contracts of sales made ?" (g) Firestone Tyre and Rubber Co. Ltd. v. Lewellin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 ; [1970] 75 ITR 327 (CA). In this case, the assessee owned a leasehold interest in certain premises for 99 years of which a period of 88 years remained unexpired. Under an arrangement entered into with the owner of the property, a wholly owned subsidiary of the assessee became the reversioner under the leasehold and the original reversioner became the lessee of the subsidiary for 22 years and 10 days at a nominal rent.The assessee became the sub-lessee of the original reversioner for a period of 22 years at a higher rent than that it was paying originally but less than the commercial rent. The assessee claimed deduction of the enhanced rent in its income-tax assessment. It was held that the extra rent paid was not money wholly and exclusively laid out for the purpose of the assessee's trade and, therefore, was not deductible. The extra rent was found to have been paid for the acquisition of a capital asset, viz., the reversion, through a wholly owned subsidiary, a creation of the assessee, and the assessee owned the real benefit of the freehold. (b) CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC). This decision was cited on behalf of the revenue for the following observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll confirm the conclusion that it is the place of business of the company. Other evidence held to be relevant on this question as decided in the cases noted hereinbefore are, inter alia,--- (a) Ownership by such a company of a business premises in India or a lesser right as a leasehold interest or a licence in such premises. (b) Public display of the name of such company in any business premises. (c) The use of stationery and other publicity material by such company advertising its business address or similar advertisements in newspapers, telephone or business directories. If it can be ascertained by such evidence that a company incorporated outside India is available for business or is open to business in India then the conclusion will follow that the company has a place of business in India and it may not be necessary to determine further whether the company is in fact carrying on business in India or not. On the other hand, other decisions cited and considered earlier appear to indicate that if it is established that such a company is in fact carrying on business in India then it will be a matter of presumption that there is a place from where the business is bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace within India then again it would be a piece of evidence to hold that the business is being carried on in India. Coming to the facts of the instant case, it appears to us that if our enquiry is confined to the limited question whether the assessee has a place of business in India then it may not be conclusively shown that there is any known address or location in India where the aseessee is available for business. The assessee does not own any premises nor any leasehold interest in any premises. It has also not been found that the assessee has any licence to carry on business activities from any particular address or location. There are no employees or officers of the assessee posted in any part of India at any particular address. If, we now examine the other,aspect of the question, viz., whether the assessee is carrying on a business in India, a different position emerges. It is found as a fact that the assessee, a foreign company, has appointed an Indian company, a wholly-owned subsidiary, as its sole agent in respect of goods manufactured by the assessee. The finished products brought to India are made over by the assessee to the Indian agent to be stored in India on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittle difference between the two expressions. From the aforesaid facts, the conclusion is inevitable and we hold that the assessee is carrying on business in India. In view of such finding it isknot necessary for us to enquire and determine whether the Indian company, a wholly-owned subsidiary of the assessee, is an alter ego of the assessee. The same conclusion would follow even if the assessee had appointed any other person, natural or juristic, as its agent in India under the same terms and conditions as the Indian company had been appointed. Once it is established that the assessee is carrying on a business the place where the business is being carried on is not difficult to locate. It is not necessary for the assessee either to own any premises or to hold any premises under a leasehold or licence. It must be held that the assessee is carrying on its business from the office of its agents. This is the law which was laid down in the case of Saccharin Corporation Ltd. [1911] 2 KB 516 (CA) and in Re Tovarishestve [1944] 2 All ER 556 (Ch D), where it was held that the business could even be carried on from a hotel where the director of the foreign company was put up tempor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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