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Imperial Tobacco Company Of India Limited v. Secretary Of State For India In Council
Structured Summary of the Provided Opinion
Factual and Procedural Background
The Imperial Tobacco Company of India, Limited (the Applicant Company) was assessed by the Collector of Income Tax to super-tax as agent for six named shareholders. All six shareholders are non-residents of British India; they held shares in the Company and were entitled to dividends arising and accruing in British India. The Company remitted those dividends to the shareholders at their residences outside British India.
The Company objected to being assessed as agent for these non-resident shareholders. The Board held that the Company was such an agent, and the matter was referred to the Court on the Company's application. The reference framed two questions: (1) whether the Collector was right in holding the Company to be an agent for these shareholders under sec. 34, Act VII of 1918; and (2) if so, whether the Company had been rightly assessed to super-tax on their account. The opinion records judgments by Woodroffe, J. (delivering the principal judgment), with Greaves, J. concurring, and a separate dissenting judgment by Ghose, J.
Legal Issues Presented
- Whether the Collector of Income Tax was correct in holding that the Company is an agent for the six non-resident shareholders under sec. 34, Act VII of 1918 (the Income Tax Act).
- If the Company is an agent, whether the Company was rightly assessed to super-tax on account of those shareholders.
Arguments of the Parties
Applicant Company (Imperial Tobacco Company of India, Limited)
- The Company contended that it was not an agent of the six non-resident shareholders as defined by the Income Tax Act and therefore could not be assessed to super-tax on their account.
- It was argued that secs. 31 and 34 of the Income Tax Act should be read together, such that a person can only be treated as an agent under sec. 34 if that person is actually in receipt of the income on behalf of the non-resident; the Company contended it was not in receipt of the shareholders' income in the sense required.
- It was urged on behalf of the Company that treating a person as liable for another's tax where that person did not receive the income might in some cases cause great hardship.
Revenue / Collector (as reflected in the opinion)
- The Collector (and the Board) treated the Company as an agent of the non-resident shareholders under sec. 34 and assessed the Company for the super-tax payable by those shareholders.
- Implicit in the Collector's position (as recited by the Court) was that sec. 34 allows the Collector to deem a person to be an agent for purposes of assessment even where that person has not been formally appointed agent by the non-resident and may not be in receipt in the strict sense described under sec. 31.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Salomon v. Salomon & Co. | Principle that a company incorporated according to law is an artificial legal person separate from its corporators. | Referred to by Ghose, J. to establish that there is no legal impediment to a company being an agent, but that the relation of shareholder and company is not automatically that of principal and agent. |
| Daimler Co. Ltd. v. Continental Tyre & Co. | Support for the general proposition that a company is a separate legal entity distinct from its members. | Adopted by Ghose, J. to reinforce the point that corporate personality does not by itself create agency between company and shareholders. |
Court's Reasoning and Analysis
Majority view (Woodroffe, J.; Greaves, J. concurring):
- Woodroffe, J. framed the key statutory question as whether secs. 31 and 34 of the Indian Income Tax Act are to be read together or disjointly. He concluded that sec. 34 merely defines who may be included as an agent under sec. 31.
- Under that view, an "agent" for the purposes of assessment must satisfy the requirement in sec. 31 of being in receipt of income on behalf of a non-resident. Therefore, whether one looks to sec. 31 or sec. 34, the person must be in receipt of income within the terms of sec. 31 to be treated as agent liable to be assessed.
- Applying that interpretation to the facts of the case, Woodroffe, J. held that the circumstances did not show a receipt within the terms of sec. 31; accordingly, the Company is not an agent for these shareholders under the Act.
- Because the Company was not an agent under sec. 31, the secondary question as to whether it had rightly been assessed to super-tax on their account did not arise.
- Woodroffe, J. directed that a copy of the judgment be given to the Revenue Authority; Greaves, J. expressly agreed with the reasoning and result.
Dissenting view (Ghose, J.):
- Ghose, J. began by acknowledging the separate legal personality of a company (citing Salomon and Daimler) but emphasized that corporate separateness does not, by itself, establish or exclude agency; something more is required to constitute a company an agent for its shareholders.
- He analysed the statutory scheme starting from sec. 31. He accepted that where a person is actually an agent and in receipt of income on behalf of a non-resident, sec. 31 makes that person liable and no sec. 34 notice is necessary.
- Ghose, J. turned to sec. 33(1), reading it to mean that any person residing out of British India whose income accrues in British India "shall be chargeable to income tax in the name of the agent of any such person and such agent shall be deemed to be for all the purposes of the act the assessee." He interpreted sec. 33(1) as not requiring that the agent be in actual receipt of the income on behalf of the non-resident; the mere fact of agency suffices for liability to be assessed.
- Ghose, J. reasoned that sec. 34 gives an extension of the meaning of "agent" by enabling the Collector to deem certain persons (who have not been appointed agent by the non-resident) as agents for purposes of sec. 33(1). Thus, sec. 34 should be read in connection with sec. 33 rather than sec. 31.
- He explained the policy behind sec. 34: it was enacted to prevent an anomaly under which a non-resident who obtained remittance direct to himself might otherwise escape assessment, whereas one receiving income through an agent in India would be assessed. Sec. 34 allows the Collector to identify a person with sufficient connection or employment by the non-resident as a "deemed agent."
- Applying this interpretation, Ghose, J. concluded that the Company fell within sec. 34: the Company remitted the shareholders' incomes, had a business connection with them, acknowledged it was a debtor to shareholders on declaration of dividend, and thus could properly be treated as employed by or on behalf of the non-residents or as having business connection. He rejected the hardship argument on two bases stated in the opinion: (a) courts should not allow exceptional hardship to govern statutory interpretation, and (b) the proviso to sec. 34 exists to prevent cases of hardship and the Collector may consider reasonable objections before treating a person as agent.
- Thus, Ghose, J. would have answered the first question in the affirmative (Company is an agent under sec. 34) and, since no argument was addressed on the second, he would also answer the second question in the affirmative.
Holding and Implications
Holding (majority): The Court (by majority: Woodroffe, J., with Greaves, J. concurring) answered the first question in the negative — the Collector of Income Tax was not right in holding that the Company is an agent for these shareholders under the Act — and therefore the second question (whether the Company was rightly assessed to super-tax on their account) did not arise.
Disposition: The majority reversed the Collector's assessment insofar as it treated the Company as agent for the six non-resident shareholders.
Implications: The immediate effect on the parties is that the Company is not to be treated (on these facts and under the majority's statutory interpretation) as an agent liable for the super-tax of the named non-resident shareholders; consequently the assessment purporting to tax the shareholders' super-tax in the Company's name would not stand under that view. The opinion contains a concurrence and a detailed dissent: the dissent would have sustained the Collector's treatment of the Company as a deemed agent under sec. 34 and would have affirmed the assessment. The opinion does not set out any broader rule beyond these interpretations of secs. 31, 33 and 34; accordingly, the direct consequence is confined to the resolution of the reference between the parties and the statutory interpretation as applied to these facts.
Appearance noted in the opinion: Mr. H.C. Morgan, Solicitor for the Applicant Company; Mr. Kesteven Gooding, Officiating Government Solicitor, for the Secretary of State.
The Judgment of the Court was as follows:—
Woodroffe, J.:— In this case the applicant Company has been assessed to super-tax as agent for six gentlemen mentioned in the reference. All these gentlemen are non-residents of British India. They are share-holders in the Company and the assessment has been made in regard to the dividends payable to them by the Company. The Company is an Indian Limited Company and the income, of which assessment was made, arose and accrued in British India. The question is whether the Company is an agent for these gentlemen as defined in the Indian Income Tax Act VII of 1918. It is their contention that they are not such agents, and that they are not in receipt of any income of the persons whose agents they are alleged to be.
The Board has held that they were such agents and the matter has been referred to us upon the application of the Company. One substantial question is whether secs. 31 and 34 of the Indian Income Tax Act are to be read together or disjointly, in which latter case it would not be necessary in all cases that the agent should be in receipt of the income. On a consideration of this matter I am of opinion that sec. 34 merely defines who may be included as an agent under sec. 31. If so, the agent whether we look to secs. 31 or 34 must be in receipt of income within the terms of the former section.
I do not think that the circumstances of this case show a receipt within the terms of the section. Though this is sufficient to determine the matter I may add that I am not satisfied that even if secs. 31 and 34 be read disjointly, the Company was under the circumstances of this case an agent within the terms of the Act. The answer, therefore, to the first question, namely, whether the Collector of Income Tax is right in holding that the Company is an agent for these share-holders, is answered in the negative. The second question, namely, if so, whether the Company has rightly been assessed to supertax on their account, does not arise. A copy of this judgment is directed to be given to the Revenue Authority.
Greaves, J.:— I agree.
Ghose, J.:— I regret very much that I am unable to concur in the judgment just pronounced. I think it necessary that I should state as clearly as I am able the reasons for which I have arrived at a different conclusion.
This is a reference made by the Chief Revenue Authority under sec. 51(1) of the Income Tax Act, 1918 on the application of the Assessee, the Imperial Tobacco Company of India, Limited. Six persons who are all residing out of British India are share-holders in the Company. They were entitled to certain dividends for their shares in the Company the profits of which accrued in British India and there is no question that the share-holders are liable to pay super-tax on their income so derived. The profits due to those shareholders were sent to them by the Company to their residence outside British India. The Company was assessed for the supertax due on the income of those six shareholders as agent of the non-resident persons under the provisions of the Income Tax Act and the Company has raised the objection that it cannot be so assessed. The questions on which the decision of this Court is sought are, (1) whether the Collector of Income Tax is right in holding that the Company is agent for these shareholders under sec. 34, Act VII of 1918, and (2) if so, whether the Company has rightly been assessed to super-tax on their account.
A Company incorporated according to law is an artificial legal person having an existence separate from its corporators. There is therefore no legal impediment to a Company being agent for any of its shareholders. The relation however of shareholder and Company is not in itself the relation of principal and agent. Salomon v. Salomon & Co. (1) and Daimler Co. Ltd. v. Continental Tyre & Co. (2). Something more would be necessary in order to constitute a Company an agent for its shareholders. The contention on behalf of the Company in this case is that if cannot be held to be agent of the non-resident shareholders so as to be liable to be assessed for income tax for those, share-holders by the procedure taken by the Collector under sec. 34 of the Income Tax Act. It is urged that sec. 34 should be read along with sec. 31 and unless a person receives income on behalf of another residing out of British India he cannot be deemed to be an agent under sec. 34, and although the Company has the income of those persons it is not in receipt of such income. Assuming that the Company is not in receipt of the income, in order to see whether the Company may be treated as agent—the provisions of the Income Tax Act commencing from sec. 31 should be examined. Under sec. 31 an agent of any person residing out of British India being in receipt on behalf of such non-resident person of any income chargeable under the Act is held liable for the tax. If he is actually an agent and in receipt of income on behalf of the principal nothing more is necessary in order to render him liable, but the tax is to be levied upon and recoverable from him under sec. 31 irrespective of any other provision in any other section of the Act. It is not necessary in such a case for the Collector to give the agent so liable any notice under sec. 34 of his intention of treating him as agent of the non-resident person, because he is in fact the agent. Sec. 32 refers to the case where the income chargeable is received by the Court of Wards and certain other persons. This section has no direct bearing on the present question but it is noticeable that the income chargeable must be received by the Court of Wards or other persons in order that the tax may be levied upon them. Then comes sec. 33, sub-sec. (1) of which has an important bearing on the present question. Under this section any person residing out of British India whose income accrues or arises within British India “shall be chargeable to income tax in the name of the agent of any such person and such agent shall be deemed to be for all the purposes of the act the assessee in respect of such income tax.” As I read this section the agent of such a non-resident person need not, be in receipt of the income on behalf of such person there being no such provision in it as in the preceding sections. The mere fact of agency is sufficient to make him liable to be assessed in respect of the income of the principal. Coming to sec. 34 it seems to me that it gives merely an extension of the meaning of the term “agent” as including persons who are treated as such, and who may be assessed under sec. 33(1) although such persons are not really agents. Sec. 34 should be read in connection with the preceding section rather than with sec. 31. Sec. 34 refers to cases where the non-resident person has no agent in British India appointed by himself and therefore it becomes necessary to find a person who should be “deemed to be an agent” only for the purpose of the Income Tax Act and that can be done by the Collector acting in accordance with the provisions of this section. Sec. 34 in my opinion was enacted for the purpose of assessing the incomes of persons residing outside British India who are chargeable with income tax here but who have not appointed any agents residing in British India who might be assessed under sec. 33(1). To hold otherwise, it seems to me, would be to support an anomaly that a person receiving his income through an agent in this country would be assessed, but if he asks his debtor to remit the income direct to him he would escape liability to pay the tax, a thing which this section was intended to remove. It is only necessary that the person on whom the Collector has served a notice under sec. 31 is a “person employed by or on behalf of a person residing out of British India or having any business connection with such person” and if that condition is satisfied the person on whom such notice has been served shall for the purposes of the Income Tax Act be deemed to be the agent of such person. The question whether the Company is a person coming within the description of sec. 34 presents to my mind very little difficulty.
The Company remits the incomes of the persons resident outside British India and should be held to have been employed to do so by or on behalf of the non-resident persons. The Company again has without doubt “connection” with the share-holders and what can that connection be but business connection? The Company itself states in its letter to the Collector that on the declaration of a dividend the Company is in the position of debtor to the share-holders. Therefore the Company also comes within the description of “having any business connection” with a non-resident person. To say that such person should also be in receipt of income on behalf of the non-resident person would be to make the enactment of the section unnecessary, because a person in receipt of income is liable to be assessed under sec. 31; also it would not be necessary to give him notice of the Collector's intention to treat him as agent, for a person receiving income for another would be an agent under the general law. It was urged on behalf of the Company that to make one person liable to income tax for another resident abroad, although he might not receive any income on behalf of such a person, might in some cases cause great hardship. The answer to this is two-fold: (1) it is a well-established rule that Courts ought not to be influenced by any potion of hardship in exceptional or individual cases in interpreting a statute, and (2) in order to prevent any case of hardship the proviso to sec. 34 has been enacted and the Collector may be trusted to give effect to any reasonable objection before treating a person as agent under this section. In the present case however there can be no such question of hardship. It may be observed that under, sec. 21 of the repealed Income Tax Act (II of 1886) the tax was chargeable in the name of the agent where the income was I received through the agent, and there was I no provision corresponding to sec. 34 of the present Act. The alterations in the present Act were in my opinion, made to remove an anomaly as I have already indicated.
I would therefore answer the first question in the affirmative. The answer to the second question depends upon the first and no argument was addressed on it. Therefore the answer to it should also be in the affirmative.
Mr. H.C Morgan, Solicitor for the Applicant Company.
Mr. Kesteven Gooding, Officiating Government Solicitor, for the Secretary of State.
S.C.M
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