1. This is a reference under Rule 17 of Schedule IV of the Madras City Municipal Act. The question referred is whether a company called the Indian Leaf Tobacco Development Co., Ltd., is liable to pay company tax to the Corporation of Madras for the six half years commencing from the first half year of 1943-47. The Corporation claimed tax at the rate of Rs. 1000 for each half year on the ground that the paid up capital of the company exceeded Rs. 20,000,00, The company appears to have taken up the extreme position that they were not liable to pay any tax at all evidently on the ground that they were not transacting any business within the city. The learned Chief Judge of the Court of Small Causes held that the company must be deemed to have been transacting business in the City during the concerned half years but he held that the company was not liable to pay company tax.
2. To understand the scope of the reference it is necessary to refer to certain provisions of the City Municipal Act. Section 110 of that Act provides for the levy of a tax on companies transacting business within the city in any half year for not less than 60 days in the aggregate. Under Section 113(1), the expression "transacts business" in Section 110 should be deemed to include the doing of acts of business of whatever nature, whether isolated or not, such as soliciting, obtaining or transmitting orders, or buying, making, manufacturing, exporting, importing, receiving, transmitting or otherwise dealing with goods. Schedule IV to the Act contains rules relating to taxation. Rule 7 relates to assessment of companies. It runs as follows :
"7. Companies shall be assessed by the Commissioner on the following scale-
Paid up capital Half yearly tax
Lakhs of rupees Rs.
A. Less than one 30
B. One and more than one, but less than two 50
C. Two and more than two,but less than three 100
D. Three and more than three, but loss than five 150 E. Five and more than five, but less than 250
F. Ten and more than ten, but leas than twenty 500 G. Twenty and more than twenty 1000
Provided that any company, the head or principal office of which is not in the City arid which shows that the gross income received in, and/or from the city in the year immediately preceding the year of taxation-
(a) has not exceeded Rs. 5000, shall pay only Rs. 25 per half year;
(b) has exceeded Rs. 5000, but shall pay only Rs. 50 per half year not exceeding Rs. 10,000;
(c) has exceeded Rs. 10,000 but has not exceeded Rs. 24,000, shall pay only Rs. 100 per half year; and
(d) has exceeded Rs. 20000 shall pay per half year Rs. 100 together with a sum calculated at the rate of Rs. 25 per half year for every Rs. 5000 or part thereof, of gross income in excess of Rs. 20,000 subject to a maximum half yearly tax of Rs. 1000.
Provided further that when a company the head or principal office of which is not in City becomes liable to tax for the first time, it shall pay in the first year a tax of Rs. 25, but if the gross income of the company during such year is subsequently found to have exceeded Rs. 5,000, it shall pay the tax calculated in accordance with the abovementioned scale less the initial payment of Rs. 25."
3. The contention of the company that it is not transacting any business in the city can be easily disposed of According to the company the only transaction which the company's agent looks after in the city is receiving tobacco from upcountry and sending the same to Bangalore for exporting the same to England. The goods, therefore, merely pass through Madras and the representative of the company looks after the receipt and the transmission of the goods. The establishment, therefore, does not earn any income as such. Assuming that these facts are true, nevertheless the company must be held to be transacting business in the city because of the wide definition of that expression under Section 113. Even acts of receiving and transmitting of goods would fall within the expression "transacting business". We agree with the learned Chief Judge that the company cannot escape from liability to pay company tax.
4. The question then is as to the rate. Though the company did not specifically claim the benefit of the proviso to Rule 7, extracted above, having regard to their extreme contention, that it was not liable to any company tax whatever, it is clear that by the time the matter came up to the court of Small Causes for disposal, the company did claim its benefits. The question, therefore, is whether the company is entitled to the benefits of the proviso, and if so, to what extent. It is common ground that the head or principal office of the company is not in the City of Madras and it is in Calcutta. The other conditions which must be fulfilled before the company can be entitled to the benefits of the proviso is that it must show that its gross income received in or from the city in the year immediately preceding the year of taxation has not exceeded a particular amount. For instance, if it has not exceeded Rs. 5000, the rate is only Rs. 25 per half year, if it has exceeded Rs. 5000 but not Rs. 10,000, it is Rs. 50 and so on. It is clear that before the company can be held to be entitled to the benefits of the proviso, it must establish two things namely, (1) that its head or principal office is not in the city and (2) that its gross income received in and from the city in the relative year has not exceeded a particular sum.
5. In this case, owing to the peculiar nature of the business transacted by the company in Madras, the company says that no income was received in or from the city in the relevant years. Though there was a suggestion that the company was suppressing their accounts, we agree with the learned Judge that the company are doing nothing like that. They did produce the only books which they had with them, namely, the stock books. Other account books they could not produce, because the nature of the business did not demand the keeping of accounts in the ordinary way. There was no cash transactions, there was no receipt or transmission of cash in or from the city. In these circumstances, the question arises Whether the second condition of the proviso can be held to be satisfied. After some hesitation, we have come to the conclusion that in a peculiar case like this, the gross income received in or from the city which is nil should be deemed to be a sum not exceeding Rs. 5000. The result is that the company would be liable to pay the minimum tax of Rs. 25 per half year.
6. We have arrived at this conclusion partly because of the result that would follow if we hold that the company was not entitled to the benefits of the proviso. As the company must be deemed to have been transacting business in the city it would be liable to company tax find if the proviso is not applicable, then the company should be assessed under the main proviso, namely, on its paid up capital. That would lead to the anomalous position that a company having a paid up capital of over Rs. 20 lakhs and having its principal office outside the city would be liable to pay at the rate of Its. 1000 per half year, if it did not earn any income in or from the city. But it would have to pay Rs. 25 if it earned Rs. 4000 during the period. Surely this contingency could not have been contemplated by the Legislature. To avoid this anomaly, we think we would be justified in accepting the other interpretation, namely, that even 'nil' income would amount to gross income not exceeding Rs. 5000.
7. The observations in a decision of a Division Bench of this in the -- 'Vulcun Insurance Co., Ltd. v. Corporation of Madras', AIR 1930 Mad 626 (2) (A), can be used to some extent in support of the view we have taken. In that case, a company which had no office within the City of Madras but began to transact business within the city in the year of taxation through an agent and had not in any manner transacted business or received any income from the city during the year immediately preceding the year of taxation was held to be entitled to claim the benefit of the proviso to Rule 7, Sch. IV of the Taxation rules under the City Municipal Act. Venkatasubba Rao J., poses the question :
"Let us suppose that the company did transact business in the city in the preceding year but that its income was 'nil' does the proviso apply or not? Mr. Rajamanickam concedes that it does. That also seems to be the view of the learned Judge. The distinction, according to them, is not between no income and some income, but the decisive test is, whether the company transacted or not its business in the city."
The learned Judges in that case eventually held that the proviso applied to the company and they also observed that when there was an ambiguity in the language of a fiscal enactment, the benefit of the doubt should always be given to the subject.
8. We cannot agree with the learned Chief Judge of the Court of Small Causes that if no income is received by a company transacting business in the city but whose head office is outside the city, no tax is payable, nor even the minimum. We hold that in such a case the minimum tax of Rs. 25 would be payable under the proviso to Rule 7 of Sch. IV.
9. Dr. John complained that the company had not discharged the onus which lay on it of proving that their gross income fell within one of the categories in the proviso to Rule 7, by producing all their account books. We do not think that it is a just complaint. We have no reason to doubt the statement of the company that the only business transacted by them during the relevant years was such that there could be no gross income in respect of it.
10. The reference is answered accordingly