Charles Gordon Spencer, Officiating C.J.
1. The Full Bench having decided that an English incorporated company is not exempt from the tax on companies imposed by Section 110 of the Madras City Municipal Act IV of 1919 by the mere reason of its capital being expressed in sterling, we have now to determine the third question referred to us, which is whether income derived from the transaction of business outside the City of Madras which is transmitted to Madras to the agents of an English firm for being converted into sterling and remitted to England is part of the gross income of the company upon which the tax is leviable. The same question was raised once before in the Sun Life Assurance Company v. The Corporation of Madras : AIR1922Mad85 but was left undecided.
2. The proviso to Rule 7 of schedule IV, Part II of the Act provides a scale for assessing the gross income of Companies the head office or a branch or principal office of which is not in the City, and whose gross income ''received in or from the City' has not in the preceding year exceeded 25,000 rupees.
3. The answer to the question referred to us depends on the meaning to be attached to the words 'gross income received in or from the City.'
4. Mr. Aingar contended that the sales of explosives on behalf of Nobel's Explosives Company, Limited, at Saidapuram and Bangalore, were not received by Messrs. Best & Co., Ltd., as income when they were sent to Madras for being remitted to the Head office in England.
5. In The Secretary, Board of Revenue v. Ripon Press. : AIR1923Mad574 Coutts Trotter, J., observed that a person could not receive the same sum of money qua income twice over. In Sundar Das v. Collector of Gujarat ILR (1922) Lah. 349, Sir Shadi Lal, C. J., was of opinion that a person could not receive a thing from himself and therefore a contractor who earned money in Baluchistan and brought it with him into the Punjab was not liable to be assessed to income-tax on it. That case was decided upon the language of the Income-tax Act (VII of 1918), and the decision might have been different if the same question of liability of an individual to pay income-tax on income earned outside and brought into British India had come up for determination under the Income-tax Act of 1922, which provides in Section 4 for taxing the profits and gains of a business arising outside British India and received or ' brought in ' within three years of the end of the year in which they arose.
6. In Narasammal v. The Secretary of State for India ILR (1915) Mad. 885 I held that an individual, who resided in British India and received there instalments of an annuity payable in Mysore and remitted to her by an agent, was liable to be assessed to income-tax on those sums which were 'received in British India'. On the same line of reasoning it might be argued that income received in the City of Madras from an agent stationed outside must come within the words 'income received in or from the city,' as it is received in the City, if not from the City.
7. But it must be remembered that we are not now considering the liability of an individual to pay income-tax on his total assessable income whether derived from a British Indian source or received by a resident in British India, but we are interpreting a local Act which authorizes a particular Municipality or Corporation to levy a tax upon business transacted within the City for profit by incorporated companies.
8. The income of a trade or business arises or accrues in the place where its contracts are made or its goods are sold. This is made clear from Smith & Co, v. Greenwood (1921) 3 KBD 583 The question whether the profits sought to be assessed were profits arising from any trade exercised within the United Kingdom of Great Britain was there answered by finding out where the operations took place from which the profits in substance arose. Again in Municipal Council of Cocanada v. The Clan Line Steamers, Ltd., ILR (1918) Mad. 455 : 36 M.L.J. 226 the trade of a shipping company was held to be exercised and its business carried on in the place where its freight earning contracts were entered into.
9. Following the principle of these decisions, there can be no doubt that Nobel's Limited, are not transacting business within the City of Madras in respect of the sales of explosives which take place at the magazines in Bangalore in Mysore State and at Saidapuram in Nellore District. The fact that Nobel's, Limited, employ Messrs. Best & Co., Ltd., as agents in Madras for the purpose of collecting the profits made at Saidapuram and Bangalore and of remitting them to England is not a circumstance from which it can be deemed that Nobel's Limited transact business in Madras City, as explained in the explanation to Section 110, even though accounts of the transactions are kept in Madras and though Messrs. Best deduct their commission for acting as agents for the English company. The mere fact that the money for which the goods are sold passes through Madras on its way to England will not involve any liability to pay the Municipal tax on companies in Madras, because in converting the profits into English money and obtaining bills of exchange on England Messrs. Best & Co. are doing no more than what might be done through any broker or Bank.
10. By the expression 'gross income' I understand to be meant the total sum by which the sale price of all goods sold exceeds their cost price at the place of sale when that sum is received.
11. Of the three questions referred for the opinion of the High Court by the Chief Judge, Small Cause Court, the first question has been answered and the second follows the opinion on the first. The third question is ''what is the meaning of the expressions 'gross income' and 'gross income received in or from the City' in the proviso to Rule 7? Does the latter expression include income arising out of business transacted outside Madras the proceeds whereof are transmitted and received by the agents of the incorporated company in Madras where they have their head office?' The answer to this depends upon the construction of Section 110 and Rule 7 of schedule 4 of the Madras City Municipal Act IV of 1919. The section makes 'every incorporated company transacting business within the city for profit or as a benefit society' liable for the tax. The explanation to it makes such company liable if it has an office, agent or firm to represent it for the purpose of transacting business in the city. There is no difficulty in construing Section 110. All that is required under Section 110 is that the company should be an incorporated company and that it should transact business within the city for profit or as a benefit society, and by the explanation it is sufficient if it has an office, agent or firm to represent it for the purpose of transacting business in the city. Schedule 4, Rule 7 is also clear, but the difficulty arises in construing the words 'its gross income received in or from the city.'
12. The Nobel's Explosives Company, Limited, is an English Company which carries on business through its agents Messrs. Best & Co., Madras. It has three magazines, one at Madras, one at Saidapuram and one at Bangalore. Messrs. Best & Co. are remunerated by commission on the sales in the three places and are paid Rs. 300 a month for watching and other charges incurred in the three places. The Corporation of Madras assessed the Nobel's Explosives Company, Limited, on the basis of the gross income from the three places and the latter objected to the assessment. Hence the reference.
13. It is contended on behalf of the Nobel's Explosives Company, Limited, that, in computing the gross income, the amounts realised by sales at Saidapuram and Bangalore should not be taken into account. The argument is (1) the income was derived from sales outside the city; (2) the contract of sales was not made in the city; (3) the sale-proceeds were received at Saidapuram and Bangalore and (4) Messrs. Best & Co. received the sale-proceeds from the two places only for transmission to their principals, It is argued on behalf of the Corporation that the agents of the Nobel's Explosives Co., Ltd., namely Messrs, Best & Co. are in Madras. (2) The sale-proceeds are received in Madras (3) the accounts are kept in Madras and credits and debits are made in the Madras account (4) the salesmen at Saidapuram and Bangalore are not independent agents of the Nobel's Explosives Limited, but are only the servants of Messrs. Best & Co. and that under the proviso to Rule 7 and schedule 4, the income should be considered to have been received in the city, if not from the city, and therefore the Standing Committee of the Corporation was right in assessing the company on the basis of the gross income from the three places.
14. That the company is liable to taxation is not disputed. The company has an agent in the city and it transacts business in the city. Therefore the conditions required by Section 110 are fulfilled. Schedule 4, Rule 7 gives the basis of taxation or the rates at which the companies are to be taxed. If a company has the head office or a branch or principal office in the city, it is assessed on the basis of capital alone, but if it has not the head office or a branch or principal office in the city it is assessed on the basis of the gross income received in or from the city. The Nobel's Explosives Company, Limited, not having the head office or a branch or principal office in the city, comes within the proviso to Rule 7 of schedule 4. It is contended by Mr. R.N. Aingar for the Nobel's Explosives Company Limited, that the words 'received in or from the city' mean the same thing. I do not think that the words ' received in or from the city ' mean the same thing. To give an example, if goods are sent by V. P. P. to mufassal, the value of the goods is received in the city; but where the sales are effected locally, the sale-proceeds are received from the city, A contract for the Supply of goods may be made in the city and the price of the goods may be paid here but delivery may be made outside. In such a case the expression ' received in the city' would apply to the income which is paid to the agent who is in the city though the amount is sent in from outside the city. But the necessary condition for assessment is that the business must be done in the city. It matters not whether the sale-proceeds are received from the city or received here from outside. The expression 'received in' used in taxing statutes is a well-known one and is intended to reach the income received from outside. The tax that is leviable under Section 110 is not an income-tax but is a tax for a carrying on or transacting business, in the city and the question is therefore whether the income which is not derived from the transaction or business in the city is liable to taxation under Section 110 and Rule 7 of Schedule 4 of the Act. It is admitted that sales were effected at Saidapuram and Bangalore and deliveries of the goods were made at the two places and the sale-proceeds were also received in the two places. All that Messrs. Best & Co. have done was to receive the proceeds, enter them in the accounts, and give credit to their principals and remit the amount that remained after meeting the commission and other charges. The real question therefore is, whether that amounts to transacting business in the city in regard to the sales at Saidapuram and Bangalore. A number of cases have been quoted by Mr. R.N. Aingar who appears for the Nobel's Explosives Co., Limited, and by Mr. Duraiswami Ayyangar, who appears for the Corporation. Before considering the cases it is necessary to bear in mind the distinction between an Act like the Income-tax Act and a Local or Municipal Act like the Madras City Municipal Act. The object of the Income-tax Act is to tax all the income which a person makes or receives and it is worded so as to reach all the income it possibly can. But an Act which taxes a profession, calling or trade, carried on in any particular city or locality, does not attempt and cannot hope to attempt to bring within its scope professions, callings, or trade exercised or carried on outside such city for locality. With these remarks I will consider the cases quoted by both sides.
15. In F.L. Smidth & Company v. Greenwood (1921) 3 K.B. 583 the facts were: A Danish firm had an agent in London for advising prospective purchasers and taking samples of earth and sending to Copenhagen, etc. Contracts were finally concluded in Copenhagen. The goods were delivered F. O. B. The Commissioners of Income-tax held that the firm exercised a trade within the United Kingdom and was assessable to Income-tax. Rowlatt, J., held that the firm was not assessable to Income-tax as it did not carry on any trade within the United Kingdom. The Court of appeal affirmed the decision of Rowlatt, J. Lord Sterndale, M. R. observes with regard to the contention, that the firm exercised trade within the united Kingdom: 'Such help as was given here in the negotiation of contracts and their execution by Mr. Robinson is not enough to justify a finding that the respondents exercised a trade within the United Kingdom within the meaning of the Income-tax Act.' Atkin, L. J., observes that canvassing for orders and supervising the successful adapting Of the goods bought for the purpose of buyer's business do not amount to an exercise of trade.
16. In the Board of Revenue v. The Madras Export Company ILR (1922) Mad. 360, the learned Chief Justice and WALLACE, J., held that in the case of a firm in Paris which purchased goods and sold them in Paris, the profits accrued solely in France and the firm's income was not taxable in British India. A mufassal firm buying goods in Madras for sale in the mufassal was held not assessble under the old City Municipal Act--vide Hajee Shaik Meera Rowther v. The President of the Corporation of Madras ILR (1909) Mad 82 In the light of the above decisions, it cannot be successfully contended that the Nobel's Explosives Company, Limited, exercises a trade or transacts business in the City by the mere fact of its agents keeping an account of the amounts realized by the sales at Saidapuram and Bangalore.
17. The next question is whether the sale-proceeds which are received by Messrs. Best & Co. in the city are income received in or from the city. In construing these words considerable help is derived from the cases which have been decided under the Income-tax Act both here and in England. Mr. Aingar urges that the income is made at the place where the sales are effected. The income or profits being the difference between the cost price and the sale price, the income is derived at the place where the sales take place and the income or profits made at places outside the city cannot be income received in the city by the fact of its being forwarded to Messrs. Best & Co. for transmission to England. In support of his contention he relies upon Sundar Das v. Collector of Gujarat (1922) 3 Lahore 349. The Full Bench of the Lahore High Court held that the income which accrued due and which was received in Baluchistan and which was subsequently brought into British India was not assessable under the Income-tax Act of 1918. The Learned Chief Justice held that what was received once in Baluchistan cannot be received again in British India. In that, case a considerable sum of money which was probably the savings of several years was brought into British India. There is nothing to show that the amount was the income of any particular year. If a person makes a fortune in a foreign country and returns to India, his fortune is not assessable, for it cannot be said to be the income of any particular year, but it may be the savings of a life time. Section 4, Clause (2) of the Act of 1922, makes the income made outside British India assessable to income-tax provided such income is brought into British India within three years of its receipt. The decision in Sunder Das v. Collector of Guzaral ILR (1922) Lah. 349 was under Act VII of 1918 in which there was no provision corresponding to that contained in the second clause of Section 4. In The Secretary, Board of Revenue (Income-tax), Madras v. Ripon Press and Sugar Mills Company, Limited : AIR1923Mad574 the facts were: A company had its office in Bellary, but it carried on all its business in Raichur in the Nizams Dominions. The Company directed the management and distributed the dividends. Some money was received at Bellary for meeting the cost of the establishment there. The Full Bench held that the Company was not liable to assessment under the Income-tax Act. In that case it was found that the dividends were payable only from the treasury at Raichur which is outside British India. The Learned Chief Justice remarked that even with regard to the amounts received at Bellary, the firm was not assessable under the Income-tax Act in respect of such amounts. There are some observations in Sun Life Assurance Company v. The Corporation of Madras : AIR1922Mad85 which support the contention of Mr. Aingar, but the point was not expressly decided and it is unnecessary to refer to that case in detail. In Municipal Council of Cocanada v. The 'Clan' Line Steamers, Limited ILR (1918) Mad. 455 : 1918 36 M.L.J. 226, it was held that the 'Clan' Line Steamers, Limited, were not liable to pay profession tax under Section 53 of the District Municipalities Act because the freight earning contracts with the shippers were not entered into at the port of Cocanada. It was found in that case that the shipping contracts were made with Messrs. Gordon, Woodroffe & Co. at Madras, and not with the local agent Messrs. Ripley & Co., who forwarded the applications of such contracts to be dealt with by Messrs. Gorden, Woodroffe & Co. If the shipping contracts had been made at Cocanada, then the company would have been liable. It may be observed in passing that it was evidently in view of this decision that the words 'whether or not such office, agent or firm has power to make binding contracts on behalf of the Company' were enacted in explanation to Section 110.
18. In this case if the contracts for sale were made with Messrs. Best & Co. in Madras, and goods were delivered at Saidapuram or any other place outside the city, the Company would be liable to pay tax under Section 110 of the Madras City Municipal Act. As I have already observed, it is not disputed that the contracts of sale were made at Saidapuram and Bangalore and the price of the goods sold was received there. Considering the object and scope of the proviso to Rule 7 of schedule 4 of the Act, it would be doing violence to its language to hold that the income earned outside the City is income received in the City. The well known rules of construction that Taxing Statutes should be strictly construed and that no one is to be taxed except by express words should not be departed from in construing the City Municipal Act. The words of Section 110 being quite clear that companies transacting business within the city are liable for the tax, it is opposed to the scheme of the Act and the wording of the section to tax a company for business transacted wholly outside the city. No doubt, if the company had the head office or a branch or principal office in the city, the question of the amount of income would not arise and it would be taxable on the basis of its capital. My answer is ' the gross income received in or from the city' does not include the income arising or accruing from the business outside the city.
19. The expression 'gross income' used in the proviso to Rule 7 cannot be said to be 'net income.' The expression ' net income' is used in Rule 9. Rules 8 and 9 apply (1) to persons holding an appointment upon a monthly salary and (2) to persons exercising any profession, art, trade or calling or their agents or servants in their absence. Rule 7 applies to incorporated companies.,. The basis of assessment under Rule 9 is the net income of the person liable to be assessed. The words 'net income' in Rule 9 must hi held to mean income which a person gets after deducting legitimate charges and expenses from the gross income. Mr. Aingar contends that the expression 'gross income' is a contradiction in terms and should be held to mean net income. The expression 'gross profits' is defined in Cotter's Advanced Accounts as meaning excess of selling price over cost price. The expression 'gross income'' has the same meaning as the expression 'gross profits.' If gross income be held to mean net income if would not only be imputing absurdity to the legislature, but would also be doing violence to plain English words. Reading the proviso to Rule 7 carefully, it appears that the legislature advisedly used the expression ''gross income,' for, a company which has an agent and does immense business in the city may not earn any net income owing to losses in another part of the world, say South America or Australia. The object of Section 110 is to assess the incorporated company which is transacting business in the city, and it is immaterial whether the business yields a net profit or not. Relief is given to such companies by the proviso to Rule 7 in cases in which there is no head office or a branch or principal office in the city. Surely the Corporation of Madras cannot be asked to wait for the declaration of dividend by a foreign company to see whether the company is liable to pay a licence fee for carrying on or transacting business within the city. The words ''gross income' mean the difference between the cost price and the sale price of the goods sold. If a company-makes a very large income by the sale of goods in the city, it cannot escape taxation by saying that it has sustained loss in another place. I have no hesitation in holding that the expressions 'gross profits' and 'gross income' mean the difference between the price at which the goods are sold and the cost price of the goods at Madras without making allowance for commission and cost of establishment and other charges.