1. This is a reference by the learned Chief Judge of the Small Cause Court, Madras, under Rule 17 of the Taxation Rules in Schedule IV of the Madras City Municipal Act. The points submitted for decision are:
(1) Whether the appellant company's depot at Madras is liable to be assessed to pay companies' tax under Rule 7, part II, Schedule IV of the Madras City Municipal Act, and
(2) if such a tax can be levied, whether the assessment should be made under the proviso to the above mentioned rule?
2. The appellant company is entitled 'The Canteen Contractors Syndicate, Limited'. It is a limited liability company registered under the Indian Companies Act. The members of the company are Canteen Contractors approved by the Army Department and the objects with which the company was formed were, mainly, the purchase overseas of all kinds of supplies required for the troops in India and the distribution of those supplies to the contractors (who also have to be approved by the Army Department). The head office of the Canteen Contractors Syndicate, Limited, is at Karachi. In Madras the syndicate maintains a warehouse. In charge of the warehouse there is a manager on Rs. 200 a month and he keeps six clerks who keep records of the articles received and the articles distributed. It is clear from the evidence of the manager that the members get their supplies from the warehouse, on indents which they fill in the prescribed form. The manager of the warehouse has no discretion with regard to the prices which are fixed by the general manager at Karachi from time to time. But the members when they take delivery of the goods from the ware Canteen house pay for them by drawing cheques in favour of the Canteen Contractors Syndicate, Limited and handing them to the manager of the warehouse. This, it is quite clear, is a series of transactions of sale. All the goods in the warehouse in one sense belong to the Canteen Contractors Syndicate, Limited; but that is not of course the same thing as saying that the goods belong to the several members of the syndicate. The members purchase the goods from the syndicate and pay for them in the ordinary way. The advantages they get are of course derived from the purchase on a large scale by and through the head office in Karachi. The manager of the warehouse stated in his evidence that the money realised by him was banked by him to the credit of the head office. But he admitted in cross-examination that he had submitted income-tax reports to the head office in respect of the costs of the business done in Madras. He stated also that although practically the whole of the syndicate's business is done with its own members, there are occasions on which sales are made to the public and on which purchases are made locally in the bazar. These, according to the manager, are a very small proportion--he said 1/10th percent, of the whole; but nevertheless such transactions are made from time to time when there is a surplus stock or when there is a temporary deficiency. On these facts we have no hesitation in holding that the Canteen Contractors Syndicate, Limited, is transacting business within the City for profit within the meaning of Section 110 of the Madras City Municipal Act. We answer the first question accordingly.
3. The second question is whether the company is to be assessed to tax under the proviso to Rule 7 of the Taxation Rules in Schedule IV. As we have already observed, the head office of this syndicate is at Karachi. It is not suggested that there is a principal office of the syndicate in the City of Madras. The only suggestion that has been made is that there is a branch office of the syndicate in Madras. From the description of his duties given by the manager of the warehouse we are clearly of opinion that there is no branch of the Canteen Contractors Syndicate, Limited, in Madras. There is a warehouse and in the warehouse business is done for and on behalf of the syndicate but the warehouse is not a branch of the syndicate. The manager, as already mentioned, is under the strictest control from Karachi. He has no discretion with regard to the prices; and he has no power of disposal of the money received from the members for goods supplied to them. He is obliged to pay all such moneys immediately into the Imperial Bank to the credit of the head office. The warehouse in Madras clearly cannot be described as a branch of the syndicate. That being so the assessment of tax on the company must be made under the proviso to Rule 7. The second question referred to us is answered accordingly.
4. Since the Canteen Contractors Syndicate, Limited, the assessees, have failed on the first point and the corporation has failed on the second point we think it right to direct that each of the parties shall bear its own costs.