Chagla, C.J:—
The question that arises on this reference is the liability of an agent to be assessed to tax on behalf of the principal. It appears that the assessee who was a non-resident in the assessment year 1943-1944 was carrying on his own individual business in Bombay. He acted as commission agent of Messrs A.N Guna Shenoy & Bros. who are the non-resident principals, and as such commission agent in the assessment year he sent to Mattancherry in the Cochin State, where Messrs A.N Guna Shenoy & Bros. were carrying on business, goods of the value of Rs. 3,56,990. These goods were supplied from time to time in the course of the assessment year. The Income-Tax Department treated the assessee as the agent of Messrs A.N Guna Shenoy & Bros, and assessed him to tax in respect of the income of Messrs A.N Guna Shenoy & Bros., and this reference raises the question of the liability of the agent to be assessed in respect of income of this firm of Messrs A.N Guna Shenoy & Bros.
The first contention raised by Mr. Palkhivala is that inasmuch as the assessee is a non-resident he cannot be appointed the agent of another non-resident. According to Mr. Palkhivala, the scheme of ss. 42 and 43 is that where income, accrues to a non-resident and that income is liable to tax, inasmuch as the Income-Tax Department cannot get at the non-resident the Act provides for a machinery whereby a resident can be appointed agent and the tax can be recovered from him on the income belonging to the principal. Turning to these two sections, s. 42 refers to certain income which is deemed to be income accruing or arising within the taxable territories, and one kind of income which is referred to in section 42 is income accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories. With regard to this income where the person entitled to the income is not resident in the taxable territories, the income may be chargeable to income tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all purposes of this Act, the assessee in respect of such income-tax. Therefore s. 42 deals with the liability of a person to pay tax in respect of certain kinds of income which notionally arises or accrues in the taxable territories. That section also imposes a vicarious liability upon his agent and it further provides that the tax may be recovered either from the person whose income it is or from the agent. Turning to s. 43 it lays down which persons can be treated as agents for the purpose of recovering tax under s. 42, and this section provides:
“any person employed by or on behalf of a person residing out of the taxable territories, 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 non-resident person shall, for all the purposes of this Act, be deemed to be such agent.”
Now, the first significant feature of this section is that the Legislature has not placed any limitation or qualification upon the person who can be treated as an agent under s. 43 if he satisfies the conditions laid down in that section. The Legislature could well have provided that only a person resident within the taxable territories can be treated as an agent. The Legislature has not chosen to do so, and there is no canon of construction, even a canon of construction applying to taxing statutes, which can persuade us to hold that although the Legislature has used clear language in s. 43 we must put a certain limitation upon that language. If there is any doubt or ambiguity as to liability to pay tax, then certainly the Court will construe a taxing statute in favour of the subject. But there is no question here of any doubt as to liability to tax. That liability is determined by s. 42. What Mr. Palkhivala wants us to do is to take the view that the Legislature wanted to impose this liability only upon a certain section of persons and not upon another section of persons. In other words, Mr. Palkhivala wants us to construe s. 43 so as to confer a special benefit upon non-residents and impose a special liability upon residents. It is difficult to understand what language has been used by the Legislature in s. 43 which can possibly justify an interpretation that only residents can be treated as agents and not non-residents. Mr. Palkhivala says that ordinarily the Taxing Department would only try to recover tax through an agent who is resident. Very likely he is right. But the possibility of a non-resident being treated as an agent being remote or very rare does not lead one to the inference that the Legislature prohibited the treating of a non-resident as an agent, because if Mr. Palkhivala is right his argument must go to the length of suggesting that there is a prohibition in s. 43 against the appointment of a non-resident by the Department as an agent. Mr. Palkhivala says that the Legislature must have contemplated that only residents would be employed as agents. We see no such indication in s. 43 at all. The only indication that we see and the only indication we are prepared to act upon is that the Legislature was anxious that the revenue to be realised by the tax imposed under s. 42 should be realised by some means or other and the Legislature was entirely indifferent if the Taxing Department could realise that revenue by appointing a non-resident as agent in preference to a resident. It is entirely for the Department to decide which person they would treat as an agent. Therefore, in our opinion, there is nothing in s. 43 itself to justify the contention put forward by Mr. Palkhivala that only a resident can be treated as an agent for the purpose of s. 43.
Then reliance is placed upon the Explanation which was added to this section by Act XXII of 1947. That Explanation serves a single specific purpose and that is to treat the acquisition of a capital asset in the taxable territories by a person after February 23, 1947 as a business connection within the meaning of this section. This Explanation was incorporated when capital gains were made taxable. What is relied upon, however, is that in this Explanation the Legislature has qualified the expression “a person” by the words “Whether residing in or out of the taxable territories,” and the rather curious argument that is advanced is that because in the Explanation the Legislature has made it clear that whether a person resides in or out of the taxable territories the acquisition by him can still constitute a business connection, therefore inasmuch as the expression “any person” is not qualified in the same way in s. 43 “any person” in s. 43 must be read to mean “any person residing in the taxable territories.” Now, in the first place, the construction of s. 43 cannot be controlled by the language used by the Legislature in the Explanation, the more so as the Explanation was incorporated after s. 43 had been enacted. In the second place, it is difficult to understand why in construing the expression “any person” in the light of the Explanation preference should be given to one part of the description of the expression “a person” and not the other part. In the Explanation the Legislature has used the expression “whether residing in or out of the taxable territories.” Mr. Palkhivala wants to take part of that expression, viz., “residing in the taxable territories” and wants to qualify the expression “any person” in s. 43 only by that part of the expression. In our opinion there is no warant whatsoever for that interpretation. Therefore it is clear that the expression “any person” in s. 43 is not controlled by the language used by the Legislature in the Explanation which was subsequently enacted. Even on principle it is difficult to understand why the Legislature, when it wanted to raise revenue by taxing a certain kind of income and wanted to impose a vicarious liability in order to see that tax was recovered, should prefer non-residents to residents as far as the imposing of the vicarious liability was concerned.
The next point that arises is whether there was in fact a business connection within the meaning of s. 43 which justified the Department in appointing the assessee an agent under s. 43 of the Act. In this connection what is urged is that there is no continuity in the business done by the assessee so as to constitute a business connection. Now, it is perfectly true that we have laid down that a stray or casual transaction entered into by an agent on behalf of the principal will not constitute a business connection within the meaning of s. 43. But whether there is a continuity about the connection or whether the agent has entered into stray and casual transactions is a question of fact which must depend upon the circumstances of each case. It is impossible to lay down a hard and fast rule and to say when the casualness will cease and continuity will come in. Mr. Palkhivala's contention is that in this case the only facts found are that the goods were supplied all in the course of the assessment year and there is no finding that any goods were supplied by the assessee in earlier years, and Mr. Palkhivala says that in order to establish continuity goods must be supplied over a period of time which according to him must mean more than at least a year. It is difficult to understand why there should be no continuity if a large number of orders are given by the principal and executed by the agent, even though those orders are within a period of one year or even within the period of one month. What constitutes continuity is not necessarily the length of time during which the connection has been maintained, but the nature of the connection, and if a large number of orders are given from time to time even within a short period, then that may in a given case constitute the continuity necessary to establish a connection, and that is exactly the position here. The Tribunal has attached importance to two facts, viz., that goods were supplied not once or twice by the assessee but from time to time, and the value of the goods was Rs. 3,56,990 which by any standard are goods of a fairly large amount. In our opinion, on the facts set out in the statement of the case there was evidence before the Tribunal on which it could have held that there was a business connection both for the purposes of s. 43 and also for the purposes of s. 42 because it was through this business connection that income, profits or gains accrued to Messrs A.N Guna Shenoy & Bros.
The last contention urged by Mr. Palkhivala is that under s. 42 the Income-Tax Department has the option either to charge to income-tax the principal or his agent, but it cannot charge to tax both concurrently. In this connection the only facts that have been found by the Tribunal is that the Income-Tax Department was seeking to assess the non-resident principal in respect of the income which had been charged to tax in the hands of the agent. Section 42 gives the option to the Department to charge to income-tax either in the name of the principal or in the name of the agent. In this case, as far as the statement of the case is concerned, the income has not been charged to tax in the name of the principal, it has only been charged to tax in the name of the agent, and the Tribunal has taken the view that it may be necessary for the Department to assess both the principal and the agent in order to obviate the possibility of s. 34 preventing assessment against the principal if the agent is held not to be liable. We express no opinion as to whether the Tribunal is right in the view it is taking because in our view if notice is served upon the principal for assessment under s. 42 it would be open to him to challenge the assessment on the ground that his agent has already been assessed and therefore he is not liable. If that contention is not accepted by the Income-Tax Officer, it would be open to him to appeal to the Appellate Assistant Commissioner and ultimately to the Appellate Tribunal. Therefore that would be the proper occasion when the Tribunal should express an opinion as to the liability of the principal to be assessed when the agent has already been assessed. Therefore, in our opinion, the Tribunal was right when in its order it stated that this question at this stage was irrelevant.
The result therefore is that we will answer the first question in the affirmative, second in the affirmative, and third also in the affirmative. Question (4) is unnecessary. The word “defendant” to be struck out.
Assessee to pay the costs.
Attorneys for Applicant: Bhatt & Co.
Attorneys for Respondent: N.K Petigara.
Answer accordingly.
P.M.P