- (1.) THIS is a reference by the Commissioner of Income-tax, Central and United Provinces, under Sec. 66(2) of the Indian Income-tax Act. There is a company at Indore known as the Nandlal Bhandari Mills Ltd., Indore - hereinafter called the Company which is engaged in the manufacture of textiles. On the 27th February, 1922 a deed of agreement was executed whereby a firm known as Nandlal Bhandari Sons were appointed secretaries, treasurers and agents of the company. Paragraph 5 of that instrument provides as follows :
(2.) THE said firm shall at any time hereafter, upon the request in writing of the directors for the time being of the said company but at the sole cost and charges of the said Company, open and maintain in Indore or/and Bombay or/and elsewhere a shop suitable for the sale by retail of the cloth and yarn manufactured at the said Companys mills, and shall from time to time out of the cloth and yarn manufactured at the said Companys mills supply the said shop with so much cloth and yarn as there shall be a demand for. THE said firm shall, with the assistance of the directors, have the general management of the said shop and of the business transacted therein and the engagement and discharge of all clerks and servants required in the said shop. THE salaries of such clerks and servants shall be paid by the said company. By way of remuneration it was agreed that Nandlal Bhandari Sons should have a fixed allowance and should also be entitled to commission @ 16 per cent of the net profits of the company and to commission @ Rs. 1.9% of the gross sale proceeds. The commission was to be paid annually when the accounts of the Company were made up. The instrument was in fact a contract of managing agency. In accordance with the powers which were conferred upon them, Nandlal Bhandhari Sons opened a branch of the Company at Cawnpore, knows as Nandlal Bhandari Mills Ltd., Cawnpore and for the years 1934-35 and 1935-36, the Income-tax Officer served a notice on the Cawnpore branch to show cause why it should not be treated as the agent of the nonresident firm, i.e. Nandlal Bhandari Sons, Indore, under section 43 of the Act. Cause was shown on various grounds, but the contentions which were advanced did not find favour with the Income-tax Officer, who on the 3rd March, 1936, declared the branch at Cawnpore to be agents of the nonresident firm, i.e. Nandlal Bhandari Sons, Indore and assessment was made accordingly. There was an appeal to the Assistant Commissioner of Income-tax, but it was dismissed; and thereafter an application for review under section 33 was preferred to the Commissioner of Income-tax and also an application under Section 66(2) requiring the Commissioner to refer certain questions of law to the High Court. The application for review was disallowed, but the Commissioner has referred the following question for the decision of this Court : Whether on the facts proved or admitted, Messrs. Nandlal Bhandari Mills Ltd., Cawnpore, were and could be treated as agents of the non residents Messrs. Nandlal Bhandari Sons, within the meaning of Sections 42 and 43 of the Income-tax Act. Section 42(1) of the Act provides :
(3.) IN the case of any person residing out of British INdia, all profits or gains accruing or arising to such person, whether directly or indirectly, through or from any business connection or property in British INdia, and 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 this Act, the assessee in respect of such INcome-tax : Provided that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the nonresident person which are, or may at any time come, within British INdia. Section 43 enacts : Any person employed by or on behalf of a person residing out of British India, 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 nonresident person shall, for all the purposes of this Act be deemed to be such agent : Provided that no person shall be deemed to be the agent of a nonresident person, unless he had an opportunity of being heard by the Income-tax officer as to his liability. ;