Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: IMPERIAL CHEMICAL INDUSTRIES LTD. VS Respondent: COMMISSIONER OF WEALTH TAX, WEST BENGAL-III
1981 P T D 93
1981 P T D 93
[Calcutta High Court (India)]
Before Dipak Kumar Sen and C. K Benerji, JJ
IMPERIAL CHEMICAL INDUSTRIES LTD.
versus
COMMISSIONER OF WEALTH TAX, WEST BENGAL‑III
Wealth Tax Reference No. 93 of 1978, decided on 29th March, 1979.
Wealth tax
--------Foreign company‑Selling its products in (India) through wholly owned Indian subsidiary‑Held; carries on business in India Sad its place of business is office of as Indian subsidiary‑Foreign company falls within definition of "company" in Wealth Tax Act and assessable as such.
The assessee‑Company was incorporated in the U. K. and carried on the business of manufacture of dyestuffs and other chemicals. The assessee owned the entire share capital of its subsidiary Indian Company. Under an agreement dated May 23, 1953, effective from January 1, 1953, the assessee appointed the Indian Company as its sole agents in specified territories, including India, in respect of dyestuffs manufactured by the assessee in the U. K. on, inter alia, the following terms and conditions
(a) The assessee would supply to the Indian Company stocks of its products to be handled and stored by the Indian Company as instructed by the assessee.
(b) Such consignment stocks would be held by the Indian Company as agents for the assessee, and, until sold, would remain the property of the assessee and the Indian Company would hand over to the assessee the stock remaining in its possession on determination of the agreement.
(c) The assessee would pay or discharge all import duties and transport expenses.
(d) The consignments would be stored in a manner indicating that they were the property of the assessee.
(e) The Indian Company would render to the assessee monthly statements showing all transactions effected by the Indian Company and would remit to the assessee money realised in accordance with the monthly statements.
(f) The Indian Company would receive from the assessee commission at the rate of 11 per cent. on the net invoice value of the product sold.
In respect of the assessment years 1957‑58, 1958‑59 and 1959‑60, in its wealth tax assessments, the assessee contended that it did not fall within the definition of a company as defined in section 2(h) of the. W. T. Act, 1957, because the assessee had no place of business in India. The Assessing Officers and the Appellate Tribunal rejected that contention and held that the assessee was assessable to wealth tax in the said years. The Tribunal observed that it would be sufficient if a foreign company sold its goods in India through a duly appointed selling agent retaining its ownership as also the control of its goods in India and that in such a case the foreign principal could be said to have a place of business in India, namely, the premises of the agent where the goods of the foreign company were sold. On a reference;
Held, that literally construed, for the application of section 2(h) it is not necessary to establish that a company incorporated outside is carrying on business in India. The section will apply if such company call be shown to have a place of business in India. In other words, if it can be established that there is a known address or a location where a foreign Company can be said to be available for business, it will come within the four corners of the section. The presence of the representative or officers or employees authorised to represent the foreign company at such address or location will confirm the conclusion that it is tie place of business of the Company. Other evidence relevant on this question are, inter alia: (a) Ownership by such a company of business premises in India or a lesser right such as a leasehold interest or a licence in such premises. (b) Public display of the name of such company in any business premises. (c) The use of stationery and other publicity material by such company advertising its business address or similar advertisements in newels, telephone or business directories.
If it can be ascertained by such evidence that a company incorporated outside India is available for business or is open to business in India, then the conclusion will follow that the company has a place of business in India and it may not be necessary to determine further whether the company is in fact carrying on business in India or not.
To determine whether a foreign company is carrying on business in India or not, it has to be ascertained initially if transactions are being had or entered into to which the Company is a party. If the participation of the company in the transactions is direct, e.g. where contracts are executed in its name and through its own officers and employees, then there is no difficulty in holding that the company itself is carrying on business in India. The position may not be so clear where the Company is connected with the transaction indirectly. e.g., through a third party in India. In such a case, it has to be determined further whether the transactions are those of the third party on his own account or whether he is acting for or on behalf of the foreign company as an agent. In the latter case again, the transactions would be those of the foreign company and not those of the agent and it would follow that the foreign company is carrying on the business. To come to the conclusion that business is being carried on in India the transac tions must be found to have some connection with this country. Even if some connection is established it may not follow that business is being carried on in India where goods are imported into India in the course of international trade. The supplier abroad may not in such cases be held to be carrying on business in India.
The tests enunciated in decided cases to determine the sites where the business or trade is being carried on are as follows: (a) Where the goods involved in the transaction are brought, stored, or located in India, further dealings with the same in India may indicate that business is being carried on in India. (6) Where transactions are had pursuant to contracts entered into by and between parties in India, the business resulting from such transactions would be held to be carried on in India. (c) Where payments involved in the transactions are made and received in India it would be relevant evidence to show that the business is being carried on in India. (d) Similarly, where negotiations leading to the transactions and forming a crucial part of the transaction take place within India, then again it would be a piece of evidence to hold that business is being carried on in India:
In the instant case, it had not been conclusively shown that the assessee had a place of business in India. There was no known address or location in India where the assessee was available for business. The assessee had no licence to carry on business activities from any particular address or location and no employees or officers of the assessee were posted in any part of India.
On the other aspect, namely whether the assessee was carrying on a business in India it is found that the assessee, a foreign company, had appointed an Indian company, a wholly‑owned subsidiary, as its sole agent in respect of goods manufactured by the assessee. The finished products brought to India are made over by the assessee to the Indian agent to be stored in India on the instructions of the assessee and such stocks were held by the Indian agent necessarily on behalf of the assessee. The products in India remained the property of the assessee and were sold in India, at prices fixed by the assessee, by the Indian agent which was authorised to pass title therein to the purchasers, This indicates that the Indian agent is authorised to sell the principal's goods by contracts made on behalf of its principal though the latter may be undisclosed. The accounts of the Indian company of such transactions are available for scrutiny and inspection by the assessee. The products are sold in containers as specified by the assessee and in the names, labels and trade marks as supplied by the assessee. Thus, the goods of 'the assessee were being sold in India pursuant to contracts made by the agent of the assessee in India and the price for such sales were being received in India which was being ultimately collected by the assessee from its agent less the agent's costs, charges and remuneration and the conclusion was inevitable that the assessee was carrying on business in India.
Once it is established that the assessee was carrying on a business, the place where the business was being carried on is not difficult to locate. It was not necessary for the assessee either to own any premises or to hold any premises under a leasehold or licence. It must be held that the assessee was carrying on its business from the office of its agents.
Therefore, the assessee, a Company incorporated outside India, had a place of business in India and was a company within the meaning of sec tion 2(h) of the W. T. Act, 1957.
Banque des Marchands de Moscou (Koupetschesky) v. Kindersely (1951) 1 Ch. 112 ; C. I. T. v. Calcutta Discount Co. Ltd. (1973) 91 I T R 8 (S C); C. I. T. v. Sri Meenakshi Mills Ltd. (1967) 63 I T R 609 (S C)Crookston Bros. v. Furtado (1910) 5 T C 632 ; Grainger & Son v. Gough (1896) 3 T C 462 (H L) ; Gramophone & Typewriter Ltd. v. Stanley (1908) 2 K B 89 (C A) ; Lalandia (The) (1933) Probate 56 ; Littlewoods Mail Order Stores Ltd. v. L R. C. (1969 45 T C 519 ; Okura & Co. Ltd. Forsbacka Jernverks Aktiebolag (1914) J K B 715 (C A) ; Smidth (F. L.) & Co. v. Greenwood (1921) 3 K B 583 ; Thames & Mersey Marine Insurance Co. v. Societa di Navigazionea Vapore dal Lloyd Austriaco (1914‑15) All E R (Rep.) 1104 (C A) and Vogel v. R. & A. Kohnstamm Ltd. (1971) 2 All E R 1428 ref.
P. P. Jinwalla with P. K. Pal and Miss M. Seal for Petitioner.
S. Sen and A. Sengupta for Respondent.
JUDGMENT
DIPAK KUMAR SEN, J. ‑This reference is in respect of wealth tax assess ments of the Imperial Chemical Industries, London, the assessee, in the assessment years 1957‑78, 1958‑59 and 1959‑60. The relevant valuation dates are the 31st December, respectively, in each of the calendar years 1956, 1957 and 1958. The facts found and/or admitted in the proceedings are as follows
The assessee is incorporated in the United Kingdom and carries on the business of manufacture of dyestuffs and other chemicals. Imperial Chemical Industries (India) Ltd. (hereinafter referred to as the Indian Company), incorporated in India, is the Indian subsidiary of the assessee and the assessee owns the entire share capital of the Indian Company. Under an agreement dated the 23rd May, 1953, effective from the 1st January, 1953, the assessee appointed the Indian Company as its sole agent in specified territories, including India, in respect of dyestuffs manufactured by the assessee in the United Kingdom on, inter alia, the following terms and conditions
(a) The assessee would supply to the Indian Company stocks of its products to be handled and stored by the Indian Company as instructed by the assessee.
(b) Such consignment stocks would be held by the Indian Company as agents for the assessee and, until sold in accordance with the provisions of the agreement, would remain the property of the assessee and the Indian company would band over to the assessee the stock remaining in its possession on determination of the agreement.
(c) The assessee would pay or discharge all import duties and transport expenses for the delivery of the consignment stocks to the Indian Company including expenses incurred for landing, warehousing, storing, mixing, repacking and insuring such stocks.
(d) The consignments would be stored in a manner indicating that they were the property of the assessee.
(e) The assessee would from time to time notify the Indian Company the prices at which the products were to be sold.
(f) The Indian Company would render to the assessee, every month, a statement showing all transactions effected by the Indian Company during the preceding month and would remit to the assessee money realised in accordance with the monthly statements, less its commis sion and expenses, within thirty days of the end of the calendar month to which the statement relates or within such period as may be agreed from time to time.
(g) `The Indian Company would keep books of account relating to the transactions and would furnish statements of stock in hand and other statistics from time to time as the assessee might direct and all such records and books would be accessible to the assessee' their travelling representatives and auditors at all reasonable times on reasonable notice and the same may be audited from time to time by the assessee's representatives or auditors at the cost of the assessee.
(h) For services rendered under the agreement and for accepting dal credere responsibility, the Indian Company would receive from the assessee commission at the rate of 11 % on the net invoice value of the products sold.
(i) The assessee would be entitled to sell its products directly in the agency territory. The Indian Company would be credited with com mission at the agreed rate on such sales.
(j) The assessee would pay for or reimburse the Indian Company for commission or discount paid by the Indian Company to its distributors including expenses incurred for advertising the product within the territory.
(k) The assessee would supply at its own expense or pay for pattern cards, circulars, samples, trade lists and other publicity materials, which would remain the property of the assessee until distribution and the balance after distribution would be returned to the assessee.
The above agreement between the assessee and the Indian Company was subsisting during all the relevant assessment years and governed the transactions between the parties. At its wealth tax assessments, the assessee contended that it did not come within the definition of a Company as defined in section 2(h) of the W. T. Act, 1951, as it stood at the relevant time. The assessee had no place of business in India. It only set its products to the Indian Company on consignment basis which were sold under the agreement.
The W. T. O. found that the assessee was carrying on business through the Indian Company. He treated the place of business of the Indian company to be the place of business of the assessee and held that the assessee came within the definition of a company in section 2(h) of the W. T. Act, 1957, and, accordingly, was assessable to wealth tax.
The assessee preferred appeals against the said assessments. Before the A. A. C. the assessee filed two affidavits affirmed by the chairman of the Indian company, respectively, on the 22nd February and the 8th July, 1961. It was alleged in the affidavits, inter alia, as follows
(a) No godowns were owned or taken on lease by the assessee for storing its products.
(b) The assessee did not own nor had it taken on lease any premises for maintaining any office in India.
(c) The assessee had no licence to use the premises of the Indian Company.
(d) The assessee was under .no obligation to consign any goods to the Indian company and it was open to the Indian Company to reject any offer of goods from the assessee.
(e) The assessee carried on its own business in the United Kingdom in which the Indian company had no hand or say.
(f) The assessee had no place of business nor any employee in India.
(g) The assessee did not deliver to the Registrar of Joint Stock Com panies in India any return.
(h) The name board of the assessee did not appear anywhere in the premises of the Indian Company nor anywhere else.
(i) The Indian company was not an employee and had no general power to act on behalf of the assessee but dealt with third parties as principal to principal. It did not carry on the business of the assessee nor did it carry on business on behalf of the assessee. In the letter‑papers and other documents used by the Indian Company the name of the assessee was not shown as the principal.
(j) The Indian company had agencies of a number of companies both local and foreign apart from the assessee.
(k) During the relevant assessment years only 20 % to 25 % of the Indian company's total business comprised of transactions in the products of the assessee. In subsequent years, the percentage was even less."
The A. A. C. found that the assessee virtually owned the Indian Com pany and that all expenses up to the point of delivery of goods to customers were borne by the assessee. He held that the relationship between the assessee and the Indian Company and the nature of the transactions were such that it could be said that the assessee was selling its goods in India through the Indian Company.
Being aggrieved, the assessee preferred a further appeal to the Income tax Appellate Tribunal. It was contended in the appeal on behalf of the assessee that the Indian company, the sole selling agent of the assessee, was selling the products of the assessee on consignment or, "adat" basis. The existence of a mere selling agency or "adat" would not amount to the assessee having a place of business at the premises of the selling agent. It was contended further that the fact that the Indian company was a hundred per cent subsidiary of the assessee would not make any difference as the assessee and the Indian Company were distinct legal entities. A place of business was essentially a physical concept the existence whereof was not established. The fact that certain expenses including storage were reimbursed by the assessee did not mean that the Indian Company was hiring a godown on behalf of the assessee. Where an "adatiya" charged its principal a part of the godown rent it could not be said that the principal had a place of business at the business premises of the "datiya".
It was contended on behalf of the revenue on the other hand that the expression "has a place of business in India" was not synonymous with the expression "carries on business in India". If there was any place of business in India where the business of the assessee was carried on i. e., where the goods of the assessee were sold, the assessee could be said to have a place of business within the meaning of section 2(h) of .the W. T. Act, 1957. It was immaterial who carried on such business and it was not necessary that the assessee itself should carry on the business. A foreign Company would be deemed to have a place of business in India if its goods were sold in India either by a selling agent or even by an "adatlya" on consignment basis.
Construing the definition of a company under section 2(h) of W. T. Act, 1957, and the agreement between the asse3see and the Indian company, the Tribunal held, inter alia, as follows :‑---
(a) For a foreign Company to have a place of business in India it was not necessary that it should either own or possess any particular business premises.
(b) It was also not necessary that the Company itself should carry on business directly in India.
(c) It would be sufficient if a foreign Company sold its goods in India through a duly appointed selling agent retaining the ownership as also the control of its goods in India. In such a case, the foreign principal could be said to have a place of business in India, namely, the premises of the agent where the goods of the foreign company were sold. Accordingly, the Tribunal dismissed the appeals.
On an application of the assessee under section 27(1) of the W. T. Act, 1957, the Tribunal has drawn up a statement of case and has referred the following question of law for the opinion of this Court as a question arising out of its order;
"Whether, on the facts and circumstances of the case, the London company is a company which had a place of business in India within the meaning of section 2(h)(ii) of the Wealth Tax Act, 1957, for the assess ment years 1957‑58, 1958‑59 and 1959‑oO and was assessable as such under the said Act for these years?"
Mr. P. P. Ginwalla, learned counsel for the assessee, contended at the hearing that in order to determine whether a company has a place of business in a country other than where the Company is incorporated, the following tests, had to be applied. The first test was whether the foreign Company was in fact itself carrying on business through its officers and employees at any particular place within the country. If the foreign Company was found to be so doing it could be concluded that it had a place of business in the said country.
Secondly, when the business was being carried on by an agent it had to be ascertained whether the foreign Company was trading by the agent or through the agent. If the business of the Company was being carried on by the agent only then it could be inferred that the foreign Company was present in the country and not otherwise. To determine whether a business was being carried on by or through the agent a cogent enquiry was necessary whether the agent was making a contract on behalf of the foreign com pany or was selling under a contract. If the agent was making a contract for the foreign company then it could be said that the foreign Company was present.
Lastly, it was necessary to ascertain the activity of the agent in the country concerned. viz., was the agent carrying in its own business or the business of the foreign company. If the agent was carrying on its own business it could not be said that the foreign company was indirectly present in the country through the agent.
Mr. Ginwalla contended that if the aforesaid tests were applied in the facts of the instant case it followed that the assessee could not be said to be present in India. The assessee did not own or occupy any premises and did not employ any person in this country. The assesses did not display its name anywhere in India nor was its name printed in the letter head of the Indian Company. Transactions in India were entered into by the Indian Company for itself and not as representing the assessee. The Indian Company had no general power to act on behalf of the assessee. On the other hand, the assessee was completely free to deal directly with any customer in India by way of export which would not tantamount to carry on business in India.
The conclusions, according to Mr. Ginwalla, which followed were that the English company was not found in India and that basically and sub stantially the Indian Company was carrying on its own business in India. Goods in the custody of the Indian Company were no doubt owned by the assessee but the transactions therewith were those of the Indian Company. The Indian Company neither made any contract nor did it sell any contract to the assessee and it could not be said that the assessee was trading by or through the Indian Company.
Mr. Suhas Sen, learned counsel for the revenue, contended on the other hand that where an agent was authorised by his principal to accept offers for the principal's goods without any further reference to the principal then the transactions on such goods between the agent and the customers was the business of the principal. It could be otherwise where the agent was empowered only to receive offers and communicate the same to its principal who had the option of accepting or rejecting the same. In such a case, the transaction, if any, would be between the principal and the customer and the business would be conducted at the place where the principal was located. In the instant case, the transactions between the Indian Company and the customers were principal to principal but the business was that of the assessee who was the undisclosed principal vis‑a‑vis the local customers.
Mr. Sen contended further that it was apparent from the facts found in these proceedings that the assessee retained complete control over the transactions in respect of its goods effected by the Indian Company. The salient features of such control were as follows:
(a) The principal would determine the amount of goods to be supplied to the agent.
(b) The goods would be contained in such containers and in such manner as the principal would determine.
(c) The principal would determine the price at which tire goods would be sold.
(d) 'The principal could withdraw any product or products wholly or partially from the scope of the agreement.
(e) The principal retained the right to inspect and audit the books of the agent,
(f) The goods would be sold in the names, labels and trade marks in their original package as supplied by the principal.
Mr. Sen finally submitted that it has been found by the Tribunal as a fact that the premises at which the goods of the assessee were sold in India was a place of business of the assessee and such finding being unchallenged it was not open to the assessee to impugn the same indirectly on the question as framed.
In the support of the respective contentions of the parties a number of decisions were cited at the Bar…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.