1. This appeal arises out of a suit filed by the appellant in the Court of the Subordinate Judge of Cochin for a declaration that certain orders passed by the Deputy Commercial Tax Officer) by the Commercial Tax Officer on appeal and by the Board of Revenue on revision in respect of sales tax assessment for 1945-46 are illegal, ultra vires, unauthorised and opposed to the provisions of the Madras General Sales Tax Act and the rules framed thereunder. The learned Subordinate Judge dismissed the suit and hence the appeal.
2. The facts of this case can be better understood by first referring to the material provisions of the Madras General Sales Tax Act (Act IX of 1939) and the rules framed thereunder. This Act was amended in 1947 and 1949. But we are concerned in this case with the provisions of the Act as they stood before these amendments. The descriptive title of the Act is :
'An Act to provide for the levy of a general tax on the sale of goods in the Province of Madras.'
The following definitions in section 2 are important,
'(b) 'dealer' means any person who carries on the business of buying or selling goods.
* * * *Explanation (2) -- The agent of a person resident outside the Province who carries on the business of buying or selling goods in the province shall be deemed to be the dealer in respect of such business for the purposes of this Act.
'(c) 'goods' means all kinds of movable property other than actionable claims, 'stocks and shares and securities and includes all materials, commodities and articles;
'(h) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge;
Explanation: A transfer of goods on the hire-purchase or other instalment system of payment shall notwithstanding the fact that the seller retains the title in the goods as security for payment of the price, be deemed to be a sale.
(i) 'turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.
Section 3 is the charging section and is in the following terms:
'3(1) Subject to the provisions of this Act, every dealer shall pay in each year a tax in accordance with the scale specified below:
(a)If his turnover does not exceed twenty thousand rupees.Five rupees per month(b)If his turnover exceeds twenty thousand rupees.One half of one percent of such turnover.
Provided that any dealer whose turnover in any year is less than ten thousand rupees shall not be liable to pay the tax under this sub-section for that year.'
There is another proviso which is not relevant. Section 3(2) provides that the turnover for all the purposes of the Act shall be determined in accordance with, and the tax shall be assessed, levied and collected in such manner and in such instalments as may be prescribed by the rules made by the Government. Every dealer whose turnover is Rs. 10,000 or more for a year shall submit such return or returns of his turnover in such manner and within such periods as may be specified in the rules made under sub-section (2) of section 3 (section 9(1)). If the assessing authority is satisfied that any return so submitted is correct and complete he shall assess the dealer on the basis thereof (Section 9(2)(a)). If no return is submitted before the prescribed date or if the return submitted appears to the assessing authority to be incorrect or incomplete the assessing authority shall proceed to determine the turnover in accordance with the rules, provided that before taking action under this clause the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted by him.
Section 10 provides for the recovery of the tax, section 11 for appeals against the orders of assessment and section 12 for revision by the Board of Revenue. An officer duly empowered by the Provincial Government may require any dealer to produce before him the accounts and other documents and to furnish any other information relating to such business (Section 14(1)). Section 14(2) provides for inspection of accounts and registers, goods, offices, shops etc.
3. In exercise of the powers conferred by Sub-section (2) of Section 3 of the Act rules were framed called the Madras General Sales Tax (Turnover and Assessment) Rules 1939. Rule 6(2) provided that every dealer commencing business after the first day of October 1939 whose estimated nett turnover for the first twelve months of his business is not less than Rs. 10,000 shall, within 30 days of commencing his business, submit to the assessing authority of the area in which his principal place of business is situated a return in form A-1 showing his estimated gross turnover and the nett turnover for the first 12 months of his business. Rule 6(3) ran thus:
'Every dealer commencing business, who has not submitted a return under Sub-rule (2) but whose turnover reaches Rs. 10,000 within the first 12 months of the commencement of the business, shall, within 30 days of the day on which his turnover reaches Rs. 10,000 submit to the assessing authority of the area in which his principal place of business is situated a return in form A-1'.
Rule 11(1) is in the following terms:
'Paragraph 1: Every dealer liable to submit a return under Rule 6, except those who have elected to be assessed by the method prescribed in Rule 13, shall, on or before the first day of May, in every year submit to the assessing authority of the area in which his principal place of business is situated a return in form A showing the actual gross and nett turnover for the preceding year.
'Paragraph 2: Every dealer not liable to submit a return under rule 6 who has a nett turnover of not less than Rs. 10,000 for any year shall (unless he has elected to be assessed by the method prescribed in rule 13) submit to the assessing authority of the area in which his principal place of business is situated, a return in form A snowing the actual gross and nett turnover for that year on or before the first day of May of the succeeding year and thereafter, for every_ year on or before the first day of May immediately following such year,'
4. On 15th March 1947 the Deputy Commercial Officer, Chowghat issued a notice to the appellant informing him that it was seen from the records of the companies stationed in British Cochin that the appellant had sold coir yarn etc. to them to the extent of Rs. 13,37,431-12-3 (the details of which were appended) during the year 1945-46, that as such sales had taken place in British Cochin he was liable to pay tax under the Madras General Sales Tax Act, 1939, that he had neither furnished the turnover in Form A-1 after having reached a taxable turnover of Rs. 10,000 as required by Rule 6(3) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, nor submitted a return in form A for the said year on or before 1st May 1946 as required by Rule 11(1) of the said rules, and giving him notice that if no satisfactory explanation was received from him accompanied by the accounts, if any, on or before the 19th March he would be finally assessed to the best of his judgment on the nett turnover of Rs. 13,37,431-12-3 for 1945-46 without further notice.
To this notice the appellant sent his objections (Exhibit B. 5). He stated that he was resident in Palluruthy and that his principal place of business was also situated in Palluruthy which was in Cochin State, that he had no place of business in British Cochin or in the Province of Madras, that the Sales Tax authorities had no jurisdiction or authority under the said Act to call upon him to submit a return of his turnover in British Cochin and that the provisions of the Madras General Sales. Tax Act did not apply to dealers whose place of business was situated outside the Province of Madras unless there was an agent in the Province. He therefore disclaimed any liability to submit a return of his turnover or to pay any tax under the Madras General Sales Tax Act. These objections were overruled and the Deputy Commercial Tax Officer by his order dated the 22nd March 1947 held that the appellant was liable to be assessed on a nett turnover of Rs. 12,30,124/- for the year ending 31st March 1946 and called upon him to pay a sum of Rs. 12.301-4-0 within 21 days.
The plaintiff filed an appeal to the Commercial Tax Officer of Malabar at Calicut against this order of assessment and raised the same contentions. But the Commercial Tax Officer confirmed the order of the Deputy Commercial Tax Officer by his order dated the 22nd May 1947. The appellant then took the matter in revision to the Board of Revenue, but his petition was rejected by the Board by its order dated the 20th October 1947. Thereupon the appellant filed the present suit making more or less the same allegations which he made and raising the same contentions as he raised before the Sales Tax Officers and the Board of Revenue. The learned Subordinate Judge held that the appellant had been rightly assessed under the Act and dismissed the suit.
5. From the evidence adduced in the case the following facts emerge. The plaintiff's principal place of business is in Palluruthy in the Cochin State. He is also a resident of that place. He had large dealings with European firms in Fort Cochin to whom he sold coir yarn. . The contracts relating to these sales were several if not all of them, executed in Fort Cochin. They were signed either by the appellant or by his son. D.W. 3 a clerk in Messrs. Pierce Leslie and Co. Ltd. produced on behalf of his company contracts entered into with the appellant and he deposed that these contracts were signed, some of them by the appellant and the others by his son Joseph, in Fort Cochin in the office of Pierce Leslie & Co. Ltd. The goods were despatched from the appellant's Palluruthy office to Fort Cochin and delivered to the merchants in Fort Cochin.
6. Mr. Muthukrishna Ayyar, learned counsel for the appellant, raised two main contentions. His first contention was that as the appellant was a resident of Cochin State and his place of business was in that State he was not bound by the laws of a different country, viz., the Stale of Madras. He cited to us passages from leading text writers on conflict of laws. Story in his book (VIII Edn., page 8) says:
'It is plain that the laws of one country can have no intrinsic force 'proprio vigore', except within the territorial limits and jurisdiction of that country. They can bind only its own subjects, and others who are within its jurisdictional limits; and the latter only while they remain therein.'
Again at page 22 he says:
'Another maxim or proposition is that no State or nation can by its laws directly affect or bind property out of its own territory or bind persons not resident therein whether they are natural born subjects or not.'
See also Dicey's Conflict of Laws, sixth edn., page 154.
7. In -- 'Ex parte Blain, In re: Sawers', (1879) 12 Ch D 522, James L. J. observed thus:
'It appears to me that the whole question is governed by the broad, general, universal Principle that English legislation, unless the contrary is expressly enacted or so plainly implied as to make it the duty of an English Court to give effect to an English statute, is applicable only to English subjects or to foreigners who by coming into this country, whether for a long or a short time have made themselves during that time subject to English jurisdiction.'
In our opinion, from this rule of law which is certainly well established it does not follow that one who is not a resident of a State can escape from or evade the imposition of taxes by the particular state if the necessary requirements are fulfilled which would justify the levy of a tax.
8. In -- 'Whitney v. Commissioners of Inland Revenue', (1926) AC 37, the facts were these. The Appellant, a citizen of the United States of America and having possessions in the United Kingdom from which he derived a larger income, was required by the Special Commissioners for income-tax to make a return of his income for the purposes of super-tax. Having failed to make the return he was assessed by the Commissioners to the best of their judgment. It was held by the House of Thirds that the assessment was rightly made. The statute of any country imposing a tax on the profits earned by a person in transactions which take place within the State is not inconsistent with the rule of international law of which mention has been made.
9. Mr. Muthukrishna Ayyar's next contention was in fact the main contention which he strongly pressed before us. The contention was mat the appellant cannot be deemed to be a 'dealer' within the meaning of the definition of the term in the Act. Before the appellant could be held to be a dealer it must be established that he carried on the business of buying or selling goods. A person who has no place of business in an area or locality cannot be said to be a person who carries on any business in that place. Even assuming that there have been sales in Fort Cochin the sales alone cannot warrant the inference that the appellant carries on a business in that area or locality. So his argument ran. He relied upon certain decisions to which we shall refer briefly. In -- 'Municipal Council of Cocanada v. The 'Clan' Line Steamers, Ltd', 42 Mad 455, the question was whether a Shipping Company which earned profits by carriage of goods by sea and in the course of its business the ships called at several ports in various parts of the world including Cocanada and which employed sub-agent at Cocanada could be assessed by the Municipality of Cocanada to a tax under Section 53 of the District Municipalities Act for exercising a trade and carrying on business in Cocanada. It appeared from the evidence in the case that all contracts with the shippers couid be and were entered into by the agent of the Company at Madras. Wallis C. J. after referring to the decision of the House of Lords in --'Grainger and Son v. Gough', (1896) AC 325, and the decision of the Privy Council in --'I^vell and Christmas Ltd. v. Commissioner of Taxes', (1908) AC 46 observed thus:
'Looking at the facts of the present case in the light of these decisions, I think there is no ground for holding that the Clan Line exercises a trade at Cocanada. It is a shipping company which earns profits by the carriage of goods by sea, and in the course of its business trades, in Lord Herschell's language, with, but not necessarily within, Port towns in various parts of the world. It has not been contended before us that a shipowner exercises his trade at all the ports at which his steamers habitually call to discharge or load cargo, which latter operation may involve entering there and then into contracts with shippers.......lt is unnecessary to pursue this question, because it is, I think, clear upon the authorities that whore, as in the present case, the freight earning contracts with shippers which enable profits to be earned by sea carriage are not entered into at the port in question by the ship's master or the local agent of the shipowner, but elsewhere, the ship-owner cannot be held to exercise his trade at the port, merely because he employs a shipping agent there to attend to other matters, such as issuing shipping orders and signing bills of lading pursuant to contracts already made and receiving payment of advance freight.'
Napier J. formulated the test thus:
'........In this class of cases if the contract out of which the profit arises is not made in the place where the tax is sought to be imposed, the liability does not arise.'
10. In -- 'Municipal Council, Dindigul v. Bombay Co., Ltd.', 52 Mad 207, the principle laid down in -- 'Municipal Council of Coconada v. The 'Clan' Line Steamers Ltd.', 42 Mad 455, was followed. The plaintiff company in that case which had its chief place of business in Madras purchased produce such as cotton and groundnuts through its agent in Dindigul, Contracts in respect of such purchases were entered into at Madras and after purchase the produce was sold abroad at Madras. The agent of the plaintiff company in Dindigul had no power to conclude any contract. The question was whether the company transacted business, that is to say carried on business within the municipality. Coutts Trotter C. J. said;
'In my opinion it would be no more reasonable so to hold than to hold that a company who sends a commercial traveller all over India to make purchases for them can be said to carry on business in all the various places at which he calls to fulfil the purpose of his employment.'
Madhavan Nair J. discussed all the relevant decisions of the English Courts on the point. He came to the same conclusion mainly on the ground that all the business contracts were concluded at Madras. To use his language
'what we have to find out mainly from the evidence is as to where the contracts relating to the business of this company are habitually made'
11. Mr. Muthukrishna Ayyar referred us to a very early case in -- 'Sulley v. The Attorney-General', (1860) 157 ER 1364, but that decision as well as subsequent decisions have all been reviewed both by the House of Lords and by the Privy Council in the two cases above mentioned. The facts in that case were peculiar, as one of the partners in a firm resided at Nottingham in England, whereas the other partners resided in New York where the principal business of the firm was carried on. The profits which arose on the resale of the goods purchased in England at an increased price in America were held not to be subject to the income-tax in the United Kingdom.
12. As Jessel M. R. pointed out in --'Erichsen v. Last', (1882) 8 QBD 414:
'there is not........any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade, but I know no one distinguishing incident, for it is a compound fact made up of a variety of things.'
Nevertheless the learned Master of the Rolls attached great weight to the fact that the company concerned in the case entered into contracts in England with English subjects for the right of carriage. Brett L. J. observed thus:
'The only thing that we have to decide is whether upon the facts of this case, this company carry on a profit earning trade in this country. I should say that wherever profitable contracts are habitually made in England, by or for foreigners, with persons in England, because they are in England, to do something for or supply something to those persons, such foreigners are exercising a profitable trade in England, even though everything to be done by them in order to fulfil the contracts is done abroad.'
In that case it was held that though the principal place of business of the company was at Copenhagen they carried on business also in England, because the contracts were made with the company in England.
13. In -- 'Werle and Co. v. Colquhoun', (1888) 20 QBD 753, the facts were these. A firm of wine merchants at Rheims in France employed a London firm to obtain orders for their wine in England. They had no wine in England, and all orders were forwarded to Rheims and the wine was packed and sent direct from thence to the customers. Payments were made direct to the firm or to the London firm who remitted the amount to the firm at Rheims. It was held that the firm at Rheims exercised a trade within the United Kingdom and were therefore assessable to income-tax in respect of profits arising therefrom. The test enunciated in -- 'Erichsen v. Last', (1882) 8 QBD 414 was applied, viz.. where were the profitable contracts made? Lord Esher, M. R. summed up the position thus:
'The making of contracts in such a case as the present is the whole substance and essence of the trade, and so the appellants exercise a business in England.'
14. In -- 'Grainger and Son v. Gough', (1896) AC 325, a foreign merchant who canvassed through agents in the United Kingdom for orders for the sale of his merchandise to customers in the United Kingdom was held not liable to income-tax in the United Kingdom as he did not exercise a trade therein because the contracts for the sale and all deliveries of the merchandise were' made in a foreign country. Stress was laid by the learned Lords on the fact that no contracts were ever made by the canvassing agents on behalf of the assessee. All they did was to transmit the orders received, and it was open to the merchant to accept them or not. Lord Herschell approved of the test enunciated in -- 'Erichsen v. Last', (1882) 8 QBD 414, namely where were the contracts habitually made?
15. The same test was applied by the Privy Council in -- 'Lovell and Christmas Ltd. v. Commissioner of Taxes', (1908) AC 46. The rule is stated thus by Their Lordships:
'One rule is easily deducible from the decided cases. The trade or business in question in such cases ordinarily consists in making certain classes of contracts and in carrying those contracts into operation with a view to profit; and the rule seems to be that where such contracts, forming as they do the essence of the business or trade, are habitually made, there a trade or business is carried on within the meaning of the Income-tax Acts, so as to render the profits liable to income-tax.'
16. In -- 'Chief Commissioner of Income-tax v. Bhanjee Ramjee and Co', 44 Mad 773 the test laid down in -- 'Werle and Co. v. Colquhoun', (1888) 20 QBD 753, was expressly applied. In that case the person sought to be taxed under the Indian Income-tax Act resided and had his principal place of business in Cochin State in Mattancherri which adjoined British Cochin and practically formed one town with it. The facts found were that contracts for the supply of goods were entered into and signed at the offices of the firm in British Cochin and the goods were delivered at the jetties of the purchasers. The sale proceeds were paid to the firm's agent or other duly authorised servant in cash in British India or by cheques which were encashed in banks in British India. In these circumstances it was held by a Special Bench consisting of Wallis C. J. and Ayling and Krishnan JJ. that the profits and gains arising through these transactions were assessable under the Indian Income-tax Act.
17. In the light of the above authorities let us see the facts of this case. The contracts of sale were made in Port Cochin. The plaintiff or his son was present in Fort Cochin and executed the contracts. The delivery of the goods was undertaken to be given in the yards of the respective buyers who were all carrying on business in Fort Cochin. On these facts we nave no hesitation in holding, agreeing with the learned Trial Judge, that the plaintiff must be held to be a person who carries on the business of buying or selling goods in the State of Madras and therefore a dealer within the meaning of Section 2 (b) of the Act. The Sales tax, as observed in -- 'The Province of Madras v. Boddu Paidanna and. Sons', 1942 FCR 90, is a tax levied on the occasion of the sale of goods. The sales must be deemed to have taken place in Fort Cochin which is part of the State of Madras. The appellant was therefore rightly assessed under the Act.
18. The appeal is dismissed with costs.