John Beaumont, Kt., C.J.
1. This is a reference by the Income-tax Commissioner under Section 66, Sub-section (2), of the Indian Income-tax Act. The learned Commissioner has propounded five questions, which involve for consideration two points. The first is whether the assessee company, Messrs. Currimbhoy Ebrahim & Sons, Ltd., are assessable to income-tax under Sections 42 and 43 of the Act in respect of the interest on a loan of Rs. 50 lakhs which they received from H.E.H. the Nizam of Hyderabad (Dekkhan), and the second, whether they are liable to be so assessed in respect of income or profits derived from a palace belonging to His Exalted Highness in Bombay. The two questions are distinct, and I will deal with the question of the loan first.
2. The loan of Rs. 50 lakhs was made by His Exalted Highness to the assessee company on August 16, 1929, on the terms of a written agreement, which is Exhibit A. The loan was to be secured by an equitable mortgage. It was to carry interest at 7 1/2 per cent, per annum which was payable in Hyderabad, and the principal was repayable by five annual instalments, such instalments to be paid in Hyderabad. There were certain provisions under which the lender was to be entitled to see the balance sheet and profit and loss account of the borrowers but it was not stipulated in the document that the loan was to be employed by the borrowers in their business or in any other particular manner. The assessee company paid a sum of Rs. 3,15,214 as interest during the year ending March 31, 1931, and the question is whether they can be charged with income-tax on that sum as agents of the Nizam. Section 42 of the Indian Income-tax Act provides that in the case of any person residing out of British India all profits or gains accruing or arising to such person whether directly or indirectly through or from any business connection or property in British India shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person and such agent shall be deemed to be for all the purposes of the Act the assessee in resepct of such income-tax. The assessee company have been appointed agents by the income-tax authorities under the provisions of Section 43, to which I will refer presently. The way the case is put by the Advocate General is this. He says the Nizam is a person residing out of British India, and he has received certain gains, that is to say, the interest on the loan, accruing or arising through or from a business connection or property in British India, and the Income-tax Commissioner has accepted that view of the matter. I am clearly of opinion that there is no business connection between the Nizam and the assessee company. The business connection must be one of the person residing out of British India, that is, the Nizam, and there is nothing to show that the Nizam is carrying on the business of money-leading. The mere fact that a person with accumulated wealth chooses to invest part of it in a loan does not constitute a business. And the fact that the borrower chooses to use the money which he has borrowed for the purposes of his own business does not, in my opinion, constitute any business connection so far as relates to the lender. I think that the relationship between the parties is that of debtor and creditor and nothing else, and that, in my opinion, is not such a business connection as is referred to in Section 42.
3. Then it is said, in the alternative, if there be no business connection, that the Rs. 50 lakhs constitute property in British India from which profits or gains accrue or arise, I am disposed to think that the word 'property' should be confined to immoveable property, and for this reason, that Section 6 of the Act which deals with the various classes of income subject to tax includes income from 'property' and 'business,' and it seems to me that it is income arising under those two headings which are dealt with in Section 42, It is clear from the provisions of Section 9 that 'property' as used in Section 6 is confined to immoveable property, and I am disposed to think that it ought to have the same meaning in Section 42, but it is not essential for the purposes of my judgment to go as far as that. I am at any rate of opinion that 'property' in Section 42 means something tangible, and not a mere chose in action. The Nizam is clearly not entitled to any specific sum of Rs. 50 lakhs, he is entitled merely to a debt, i.e., a chose in action, and it seems to me that that is not property in British India within the meaning of Section 42, That disposes of the first question in the case.
4. The second question arises in this way. It is said that the Nizam has a palace in Bombay which produces some profit. It is not suggested that Messrs. Currimbhoys are in fact the agents of the Nizam, or that they have anything whatever to do with his palace in Bombay. But it is said that because they pay interest on their loan to the Nizam they can be constituted as a statutory agent of the Nizam under Section 43 of the Act, and that they thereupon become liable to be assessed to income-tax in respect of all or any of the Nizam's property in British India, The argument seems to me a somewhat startling one. I think it must go as far as this, that if a bank in Bombay credit the account of a non-resident customer with interest, so that the non-resident customer receives some money from the bank, the bank can be appointed as the agent of the non-resident customer and can bo assessed as his agent in respect of income-tax on the whole of that customer's property in British India, although be it noted there is no provision in the Act entitling the agent to recover the tax paid from the principal. It is said that we are bound to arrive at that conclusion from the terms of the Act and a recent decision of the Privy Council. Section 43 provides that any person employed by or on behalf of a person residing out of British India, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains, upon whom the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the nonresident person shall, for all the purposes of the Act, be deemed to be such agent. So that there are three classes of persons who may be appointed agent. The first is a person employed on behalf of the nonresident, and the second is a person having business connection with such non-resident. The assessess in the present case do not come under either of those categories. Then the third class is, 'or through whom such person is in the receipt of any income, profits or gains'. It is said that because the income on this debt is received by the Nizam from the assessees, the assessees are liable to be appointed as his agents. It was suggested by Sir Amberson Marten in Commissinor of Income-tax, Bombay v. Bombay Trust Corporation I.L.R. (1928) Bom. 702 30 Bom. L.R. 1172 that the words 'through whom' in Section 43 have not the same meaning as the words ' from whom', and he attached significance to the fact that ' through' and not 'from' was used. In that case this Court held that the agent within the meaning of Section 42 and Section 43 must be a person who received the profits on which the tax was to be charged, and certainly the fact that the Act confers no right on the agent who pays the tax of the non-resident to recover the amount of the tax from such non-resident would seem to afford a strong argument in favour of that view. But the Privy Council took a different view, and held that the agent need not be a person in receipt of the rents and profits. The report of the case is in 57 Indian Appeals at p. 49, and Lord Dunedin in dealing with the words of Section 43 describing the agent says, 'Taking the words as they stand : the respondents have a business connection with the Hong Kong Company, and 'through them' the company is in receipt of profits or gains.' So that he treats that case as one in which the agent came within both the second and the third categories, and there is no doubt whatever that on the facts of that case there was a business connection between the non-resident and the person appointed agent. But the question as to what was necessary in order to bring a person within the third category of agents in Section 43, that is a person through whom the nonresident is in receipt of income, was not decided, since in that case the person came certainly within the second category, and possibly also within the third category. Now I am not prepared to determine exactly what must be proved in order to bring an agent within that third category, but I am prepared to hold that it is necessary to prove that he is something more than a mere debtor. In this case Messrs. Currimbhoys are nothing but pure debtors of the Nizam of Hyderabad, That being so, I am prepared to hold that they are not persons who can be appointed agents within Section 43. If that is so, then they cannot be charged in respect of the Nizam's palace in Bombay, which is no doubt property in British India within the meaning of Section 42. I I think, therefore, that the actual questions propounded must all be answered in the negative. Costs of the assessees to be paid by the Commissioner, such costs to be taxed by the Taxing Master, Original Side, as on the original side scale.
5. I agree, but I should like to state shortly my reasons. The assesses company carried on business in Bombay as managing agents of various cotton and spinning and weaving mills and other companies. In 1929 they borrowed a sum of Rs. 50 lakhs from H.E.H. the Nizam at 7 1/2 per cent, interest on the security of their mills and other properties in Bombay on certain terms. The principal terms which seem to be material in this case are that the interest was to be paid in Hyderabad, and secondly, the income-tax in respect thereof was to be paid by the borrowers, the assessee company.
6. The loan was for a period of five years, and the creditor, that is to say, the Nizam, was entitled to appoint a representative, at the cost of the assessee, to look after his interest in connection with the security. There is nothing to show whether such representative has ever been appointed. The creditor had also the right to see the balance sheet and profit and loss account of the company from year to year during the period of the loan. The loan was given in Hyderabad and was repayable also at Hyderabad.
7. The Commissioner of Income-tax served a notice on Currimbhoys who are the agents of the assessee company under Section 43 treating them as agents of the Nizam in respect of the income-tax due on a sum of Rs. three lakhs odd, being the amount of the interest paid by the assessee company to the Nizam for the year in question, as also in respect of a palace of the Nizam situated in Bombay. It is common ground that the Currimbhoys are not is fact the agents of the Nizam, nor have they anything to do with the palace. The assessee company showed cause against the notice, but the Commissioner held that under Section 43 and Section 42 of the Act they were agents of the Nizam, and liable, therefore, to pay income-tax due on the sum as well as on the income of the palace. At the request of the assessee company the present reference is made to us.
8. The contention of the Crown is that under Section 43 the Nizam, who for the purpose of this reference must be treated as a non-resident foreigner, was in receipt of income through the Currimbhoys, and that this fact entitled the Income-tax Commissioner to treat him as an agent, which he did, Currimbhoys thereupon became statutory agents and liable to be treated as such agents for all the purposes of the Act, one purpose being payment of the income-tax in respect of the sum of Rs. three lakhs odd, which under Section 42 must be deemed to have arisen or accrued to the Nizam through or from a business connection or property in British India. If I understand the argument, this is how the learned Advocate General has put his case.
9. The question is whether the Commissioner was right in treating the Currimbhoys as agents. Section 43 of the Act provides that (a) any person employed by or on behalf of a non-resident or (b) having any business connection with a non-resident or (c) through whom a non-resident is in the receipt of any income &c.; may be agent for the purposes of the Act if he is served with a notice by the Commissioner of Income-tax of his intention of treating him as such agent. There are thus three classes of agents. It is common ground that Currimbhoys do not come within the first. It is argued that they come within the two other classes. Then the question is whether there is a business connection between them and the Nizam within the meaning of Section 43 and also Section 42, as the same expression occurs there. It is conceded that in this connection the business in question must be the business of the non-resident person. Can it then be said that the Nizam is carrying on business in Bombay because he has advanced moneys to a person for the latter's own business This is the case here, Can it be said that there is business connection between the Nizam and Currimbhoys because the latter borrowed out of British India a sum from the former In my opinion the answer must be in the negative. The word 'business' is not defined in the Act nor is the expression 'business connection.' It is clear that there must be a business in British India and there must be a connection in respect thereof between the person in India sought to be taxed or treated as an agent and the non-resident. Now, carrying on business can only exist when there is a succession of acts or a continuity of transactions or acts, and the performance of a single act apart from special circumstances is not enough even though it may result in gains or profits. See Smith v. Anderson (1880) 15 Ch. D. 247 Erichsen v. Last (1881) 8 Q.B.D. 414 Werle & Co. v. Colquhoun (1888) 20 Q.B.D. 753 It is not suggested, and obviously it cannot be suggested, that the Nizam is carrying on money-lending business, and it is difficult to see how the relationship between him and the Currimbhoys can be said to be a business connection merely because there is this single loan made by the former to the latter. That relationship, in my opinion, is that between a debtor and a creditor.
10. The next question is, do the Currimbhoys come within the third class of agents Although the words are wide and there is some force in the contention on behalf of the Crown, I think they do not. In my opinion the language must be construed reasonably. The Advocate General says that in the ease of a fiscal statute if a ease comes within the letter of the law, the statute must be given effect to, irrespective of any resulting hardship. True, but does the case come within the letter of the law What does the law say 'Any person through whom such person is in the receipt of any income &c.;' Does the Nizam get the interest through the Currimbhoys 2 Obviously not. He does receive it from Currimbhoys. But that is not the statute. The statute does not say 'Any person from whom such person &c.;' Then why should not the statute be given effect to In Commissioner of Income-tax, Bombay v. Bombay Trust Corporation I.L.R. (1928) Bom. 702 30 Bom. L.R. 1172 Marten C.J. was of opinion that the word 'through' cannot be construed as meaning 'from'. I respectfully agree. But says the Advocate General that the case is overruled by the Privy Council. No doubt it is. But as I read the decision of their Lordships, Income-tax Commissioner, Bombay Presidency v. Bombay Trust Corporation (1929) I.L.R. 57 I.A. 49, 32 Bom. L.R. 364 I think it is not overruled on this point. The question whether the Bombay Company would come under the third class of agents described in Section 43 did not arise in that case. The agency which arose there came within the second class and in my opinion the observations of Lord Dunedin to which the Advocate General refers must be read as pointing out that the two conditions necessary were fulfilled, (1) that there was a business connection and (2) it was through that business connection the income sought to be taxed was recovered or earned. It may be noted that the words 'through and from' a business connection also occur in Section 42. It seems to me that the point which was before their Lordships was whether there was a business connection between the Honkong Company and the Bombay Company, and whether through the Bombay Company the income was received by the latter within the meaning of Section 42 of the Act. In my opinion the words must be construed reasonably and the mere fact that the Nizam received interest on the loan from the Currimbhoys cannot make the latter to be taxed as agents within the meaning of the words ' through whom &c.;' in Section 43. If this section is construed in the way the Advocate General suggests it should be, the result would be that a bank for instance which credits some interest in the account of a non-resident customer would be a statutory agent even with regard to the properties which the customer may possess in any part of British India.
11. In the view I have taken it seems to me that it is not strictly necessary to consider the applicability of Section 42 to the facts of this case. Having regard, however, to the question raised and the arguments advanced I would like to state my conclusion. It is conceded that the income sought to be taxed accrued or arose and was received out of British India. The question is whether it cannot be constructively deemed to have been received in British India under Section 42. The Grown says that the income arose directly or indirectly through or from a business connection in British India. This contention I have examined whilst discussing Section 43. In my opinion the connection between the Nizam and the Currimbhoys was that between a creditor and a debtor and not a business connection. Then it is argued that the income arose from property in British India, namely, the debt. It is argued that the debt is situated in Bombay, and some reference was made by the learned Advocate General to a decision of this Court in which it was held that the situs of the debt was the residence of the debtor Chunilal v. Chaturbhuj, (1931) 34 Bom. L.R. 17 As far as I remember, that decision was confined to the facts of that particular case, and one fact was that the debt in that case was payable at Indore, and the debtor also resided in Indore. In this case the evidence is that the moneys were paid in Hyderabad and were repayable also there, Then it is difficult to see how the Nizam can be said to be the proprietor of the 'debt' and can be said to possess property in Bombay because his debtor resides in Bombay. After the transaction was completed, the only right he has is to recover the moneys which he had lent. Assuming, therefore, that the Rs. 50 lakhs were kept intact in Bombay, it is difficult to see how the Nizam can be said to be the owner of it. Apart from that, I think, there is considerable force in the argument that property in Section 42 means immoveable property and not a mere debt or a chose in action. In Section 6, which deals with taxable income, the various heads of income chargeable to income-tax are bet out, one of them being property. Reading Sections 6 and 9 together the word 'property' there only means immoveable property. There does not appear any satisfactory reason why the word should not be construed in the same sense under Section 42.
12. For these reasons I agree that the questions raised on the reference should be answered in the manner proposed by my Lord the Chief Justice.