TMI Blog1958 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... T The judgment of the court was delivered by VENKATARAMA AIYAR, J.--This is an appeal against the judgment of the High Court of Bombay in a reference under section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act. The appellant is a private limited company incorporated under the Indian Companies Act, and is carrying on business as marine engineers and ship repairers. Its registered office is in Bombay and it is resident and ordinarily resident in India. Its entire share capital is beneficially owned by two British companies, the P. O. Steam Navigation Co. Ltd. and the British Indian Steam Navigation Co. Ltd., whose business consists in plying ships for hire. Under an agreement, entered into with the two companies aforesaid, which will be referred to hereinafter as the non-resident companies, the appellant repairs their ships at cost, and charges no profits. Now, the point for determination is whether, on these facts, the appellant is chargeable to tax under section 42(2) Of the Act. That sub-section runs as follows : " Where a person not resident or not ordinarily resident in the taxable territories carries on business with a person residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated February 24, 1955, held that on the facts found, section 42(2) was applicable and that the appellant was liable to be assessed to income-tax and excess profits tax under that section. The appellant applied under section 66A for leave to appeal against this judgment to this court, and that application was dismissed. The appellant thereafter applied for and obtained leave to appeal to this court under article 136, and hence this appeal. It must be mentioned that on December 31, 1948, an order of assessment had been made in respect of the income-tax payable by the appellant for the account year 1943-1944, and therein, the profits chargeable under section 42(2) had not been included. But subsequently, the Income-tax Officer took action under section 34 of the Act, and on May 29, 1953, made an order assessing the appellant to tax for that year on the profits deemed to have been made by it under section 42(2), and against that order, an appeal is pending before the Appellate Assistant Commissioner. That order is not the subject-matter of the present proceedings, which are concerned only with the assessment of income-tax for the account years 1944-1945 and 1945-1946 and of exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is said, is that the profits of the non-resident should be taxed, but that the tax should fall on the resident by reason of his close connection with the non-resident. Support for this contention is sought in the provision in section 42(2) that the resident shall be deemed to be the assessee for all purposes of the Act. The word "deemed" imports, it is argued, a legal fiction, and if it was the business of the resident that was intended to be taxed, then he is, in fact, the assessee, and it would be inconsistent with that position that he should be treated as an assessee by a legal fiction. It is also urged that sub-sections (1) and (3) of section 42 deal with the profits of a non-resident and prescribe the conditions under which and the manner in which the tax could be imposed and collected, and section 42(2) must, in this setting, be construed as referring to the business of the non-resident. There would have been considerable force in this argument, had there been any ambiguity or uncertainty in the wording of section 42(2) as to whether it is the business of the resident that is sought to be taxed or that of the non-resident. But that is not so. The language of the enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed on both these classes of cases, and the word "derived" has reference to the latter, while the words "profits which may reasonably be deemed to have been derived" relate to the former. That both these clauses relate to the business of the resident is clear from the words "to the resident" occurring therein. The word "derived" in section 42(2) must therefore be interpreted as referring to the business of the resident. The respondent sought further support for this conclusion in the words "which may reasonably be deemed to have been derived" in section 42(2), and contended that those words could apply only to a business which does not yield profits, and that will fit in, in the context, only with the business of the resident and not of the non-resident. The answer of the appellant to this contention is that the words in question should be construed as meaning not notional profits but such proportion of the actual profits of the non-resident as could reasonably be apportioned to the business in India. Reliance was placed in support of this contention on rules 33 and 34 of the Indian Income-tax Rules, 1922. Rule 33 provides for the determination of the profits of a non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present question which is whether the word "derived" indubitably points to the business of the non-resident as the one taxable under section 42(2), and for the reasons already given, the answer must be in the negative. The appellant also relied on the clauses in section 42(2) that "the profits shall be chargeable to tax in the name of the resident" and that "he shall be deemed to be the assessee for all purposes of the Act" as indicating that it is not the business of the resident that is really sought to be taxed. But these clauses are explainable with reference to the fact that the profits taxed are not actual profits but what are deemed to be profits. It was argued that if it was the intention of the Legislature that what was not profits should be deemed to be profits, that should have been independently provided for before the tax is imposed, and that in the absence of such a provision, the word "deemed" must be construed as referring not to notional profits being treated as actual profits, but to a person who is not, in fact, an assessee, being treated as an assessee. We see no substance in this argument. There is no reason why an enactment should not both declare notion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply ships for hire, and that the appellant has no concern with that ; that the business of the appellant is to repair ships and that the non-resident companies have no connection with that business ; and that all that the non-resident companies. do is to get their ships repaired by the appellant, and that does not amount to carrying on any business with the appellant. A person who regularly purchases his goods from a particular dealer does not, it is said, carry on business with that dealer, and on the same analogy, in getting their ships repaired by the appellant the non-resident companies cannot be said to carry on business with them in the real sense of that word. We are unable to agree with this contention. The word "business" is, as has often been said, one of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense. Discussing the connotation of the word "trade", Scott, L.J., observed in Smith Barry v. Cordy : " The history of judicial decisions has been similar, showing a strong tendency not to restrict the scope of Schedule D ; a tendency which was, we think, in sympathy with the general social and economic outlook of the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ankin, "is different from, though not unrelated to, the word 'business' of which there is a definition in the Act ". And in Anglo-French Textile Co., Ltd. v. Commissioner of Income-tax, Madras, this court has observed that " when there is a continuity of business relationship between the person in British India who helps to make the profits and the person outside British India who receives or realises his profits, such relationship does constitute a business connection". Vide also the observations in Bangalore Woollen, Cotton and Silk Mills Co. Ltd. v. Commissioner of Income-tax, Madras. The words "where a person non-resident in the taxable territories carries on business with a person resident" in section 42(2) must be similarly interpreted, and a non-resident should be held to carry on business with a resident, if the dealings between them form concerted and organised activities of a business character. We are accordingly of opinion that, on the facts found, the non-resident companies must be held to have carried on business with the appellant as provided in section 42(2). It was argued that the result of this arrangement was only to reduce the repairing charges and enable the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
