MCLEOD AND COMPANY LTD. v. STATE OF ORISSA — 1971 DIGILAW 76 (ORI)

JUDGMENT : A. Misra, J. - This is an application under Articles 226 and 227 of the Constitution of India for quashing the orders of assessment under the Orissa Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1959 (hereinafter to be referred to as the Orissa Taxation Act) passed by the Assistant Tax Officer on 23-6-1962 for the quarters ending on 30-9-1960 to 31-3-1962 and the order passed in appeal and revision confirming the said assessment by the Assistant Commissioner and Commissioner respectively. 2. The facts on which this writ application is founded, in brief, are as follows I Two Limited companies, viz. Nellimarla Jute Mills Co. Ltd. and Chittivalsa Jute Mills Co. Ltd. incorporated under the Companies Act, 1913 with their registered offices situate at Calcutta were engaged in the business of jute manufacture. The said two companies in the course of their business were purchasing jute from various centres in Orissa, storing them and despatching them to their respective Mills. Both were registered dealers in different circles under the provisions of the Orissa Sales-tax Act and were also similarly registered as dealers under the provisions of the Orissa Taxation Act. They used to file their returns on which they were being assessed under the Orissa Taxation Act. The Nellimarla Jute Mills Co. Ltd. filed returns of their turnover for the quarters ending 30-9-1959 to 30-6-1960 and paid the admitted tax. So also, the Chittivalsa Jute Mills Co. Ltd. filed returns of their turnover for the quarters ending 30-9-1959 to 31-3-1960 and paid the admitted tax. The Petitioner who is also a limited company incorporated under the Companies Act, 1913 having its registered Office at Calcutta was the managing agent for the Chittivalsa Jute Mills Co. and Secretary & Treasurer for the Nellimarla Jute Mills Co. during the period from 30-9-1960 to 31-3-1962. The Petitioner who is also a limited company incorporated under the Companies Act, 1913 having its registered Office at Calcutta was the managing agent for the Chittivalsa Jute Mills Co. and Secretary & Treasurer for the Nellimarla Jute Mills Co. during the period from 30-9-1960 to 31-3-1962. Though the two principal companies had separately registered them selves as dealers, had submitted their returns for the previous quarters and had also paid the admitted tax and though the Petitioner-company was not engaged in any such business of stocking or transporting jute by road or inland waterways, on 17-5-1963 it was served with a notice of demand along with assessment orders as at Annexure J passed on 23-6-1962 by the Assistant Tax Officer, Cuttack Circle, Cuttack for the quarters ending on 30-9-1960 to 31-3-1962, the assessment order of the quarter ending 30-9-1960 having been adopted for the subsequent quarters. 3. Though various grounds were taken in the writ petition in assailing the validity of the assessments, at the time of hearing, the attack against the orders was confined to the following grounds : (I) Assessment can be made only against the jute mills which admittedly were carrying on the business in jute and registered as dealers and not the Petitioner-company which is neither engaged in any such business and is also a non-resident; (2) the principal jute Mills-company is not a non-resident dealer; (3) notice as required under law was not served on the Petitioner before passing of the assessment orders and (4) principles of natural justice have not been observed in passing the impugned orders of assessment. 4. On behalf of opp. parties, it is stated that it is the Petitioner-company which applied for and obtained registration certificate and renewals on behalf of the Jute Mills; that the principal company being a non-resident dealer, it was within the competence of the assessing authorities to make assessment against the Petitioner who were the agents; that there is ample material to show, and in appeal it was found as a fact that notice had been duly served on and received by the Petitioner who appeared in the proceeding ?through an Advocate and that on their failure to produce their accounts, the assessment was on the basis of best judgment. Therefore, it is not open to the Petitioner to challenge the same. 5. Point Nos. Therefore, it is not open to the Petitioner to challenge the same. 5. Point Nos. 1 and 2 : These two points being inter connected are taken up together. The dealer?s liability to be assessed under the provisions of the Orissa Taxation Act is not disputed. The expression ?dealer? as defined in Section 2(5) of the Act runs as follows: 2(5) ?Dealer? means any person who stores at one time jute in excess of fifty maunds or bamboos excess of one thousand in number or kendu leaves in excess of one standard maund or minerals and mineral-ores before or after being carried by motor vehicle, cart, trolley, boat" animal or human agency or any other means except railways or airways and includes his agent; Explanation- The manager or agent of a dealer who resides outside Orissa and who stores such goods shall be deemed to be a dealer for the purpose of this Act; 6. Three-fold contentions are advanced by learned Counsel for Petitioner. Firstly, it is stated that even assuming that Petitioner is an agent of the principal company, it will not come within the definition of the expression ?dealer? unless it is shown that the Petitioner-company itself was engaged in the business. Secondly, it is urged that an agent whose residence is outside the State of Orissa will not be a dealer within the ambit of the Explanation quoted above. Lastly, it is contended that as the Nellimarla Jute Mills Co. Ltd. was registered as a dealer under the Act and had places of business within the State of Orissa, it cannot be said to be residing outside the State of Orissa to attract the application of the Explanation. 7. As the definition of the expression ?dealer? stands and on a construction of the Explanation, there is no scope for the contention that the agent also must be engaged in the business to deem him to be a ?dealer for the purpose of the Act. On the language of the Explanation, it is clear that an agent is deemed to be a dealer for the purpose of the Act irrespective of his being engaged or otherwise in any independent business. On the language of the Explanation, it is clear that an agent is deemed to be a dealer for the purpose of the Act irrespective of his being engaged or otherwise in any independent business. If the intention was to make only those agents who are themselves engaged in the business liable as dealers, the Legislature would not have intended to saddle the liability of the principal engaged in the business on the agent where the principal is a resident outside the State. The second ground is equally without force. 8. The main sub-section defines the expression ?dealer?. Under the Explanation the manager or agent of a dealer who resides outside the State is also deemed to be a dealer for the purpose of the Act irrespective of the agent or manager being a resident inside or outside the State. Therefore, in construing the provision, the place of residence of the agent has absolutely no relevancy. The last contention in this regard is that the principal, i.e. the Nellimarla Jute Mills Company who is a dealer cannot be said to be a resident outside the State of Orissa, because in the case of companies unlike individuals, every place where it carries on business is a place of its residence. Therefore, it is argued that when the Nellimarla Jute Mills Company admittedly carries on business at certain places in The State of Orissa and has also been registered as a dealer, it cannot be treated as residing outside the State. Of course, if the principal is not a resident outside The State, The Explanation will not be attracted, and as contended, Petitioner may not be liable to assessment. The question, therefore, for consideration is whether The principal company is to be treated as a resident within the State of Orissa or as a resident outside The State. 9. It is stated that the Companies Act does not indicate what place is to be treated as the place of resident of a Company, though it requires mention of -the place of its registered Office. The argument advanced is that unlike an individual wherever a company carries on business, so far as that business is concerned, the said place will be its place of residence. In support of this contention, reliance is placed on the decisions in 5 Reports of Tax Cases, pp. 103 and 211. The argument advanced is that unlike an individual wherever a company carries on business, so far as that business is concerned, the said place will be its place of residence. In support of this contention, reliance is placed on the decisions in 5 Reports of Tax Cases, pp. 103 and 211. The former case has no relevancy to the point at issue as in that case the question arose whether in terms of Section 39 of the British Income tax Act of 1842, the occupation as a tenant of the Appellant, an American citizen in the United Kingdom for certain purposes would make him liable to be assessed for local and imperial taxes. The other case relates to a company which was registered in the colonies whose primary place of business in dealing with diamonds was United Kingdom. In deciding that case, it was held that United Kingdom was to be treated as the place of residence for the purpose of levying taxes as the principal place for transaction of their business was in that country. In the decision reported in In re Travancore Quilon Bank Ltd. AIR 1939 Mad. 318, in connection with a winding up proceeding, the question arose as to what should be the domicile of a company. The company was registered in Quilon, but its principal place of business was in Madras. It was held: The domicile of a corporation is the place considered by law to be the centre of its affairs, which (1) in the case of a trading corporation is Its principal place of business, i.e. the place where the administrative business of the corporation is carried on; (2) in the case of any other corporation is the place where its functions are discharged. The registration of the company is not for all purposes of itself decisive. The question in each case is, where is it that the real business of he company is carried on? According to the answer to that question, the company?s domicile must in the main be determined. The domicile of a corporation is therefore the place where "the brain which controls the operations of the company is situate. 10. It is not disputed that every company shall state in The memorandum the State in which the registered Office of the company is to be situate. The domicile of a corporation is therefore the place where "the brain which controls the operations of the company is situate. 10. It is not disputed that every company shall state in The memorandum the State in which the registered Office of the company is to be situate. In the present case, the memorandum provides that the registered Office of the company will be situate in the State of West Bengal. The statutory necessity of stating the location of the registered Office of a company is more than one. It facilitates communications and notices in the name of the company at that particular address. Secondly, it determines the nationality and domicile of the company and thirdly, the jurisdiction of a Court is also determined with reference to the registered office of a company. Thus, to determine the place of residence of domicile of a company, the facts to be looked into in each case are as to the place where its principal business is carried on, that is to say, the place from which the brain controls the operations of the company and secondly, the location of its registered office with the aforementioned objectives. In the present case, the principal company on its own overmen has its registered Office in the State of West Bengal though it is carrying on business of collecting and transporting jute from various parts of the country including places in the State of Orissa where it may be having offices for facilitating transaction of its local business. The real operation and control of the company?s business are done at the place where its registered office is situate and all notices and communications are to be issued to that address. In these circumstances, we are unable to agree that became the principal company has some places of business within Orissa, it is to be treated as residing at all these places and not a resident from where its business operations are directed. For these reasons, we reject the Petitioner?s contention and hold that the principal company is a non-resident dealer, and therefore, under the Explanation to Section 2(5) of the Act the Petitioner-company as agent are liable to be deemed as dealers for the purpose of the Act against whom assessments could be made. 11. For these reasons, we reject the Petitioner?s contention and hold that the principal company is a non-resident dealer, and therefore, under the Explanation to Section 2(5) of the Act the Petitioner-company as agent are liable to be deemed as dealers for the purpose of the Act against whom assessments could be made. 11. Point No. 3 - The next ground of attack is that the required notice was not served on the Petitioner before passing of the assessment orders. The point whether notice was issued and Served on the Petitioner is a question of fact. Opp. parties aver that besides sending notice by ordinary post, a subsequent notice was also issued by way of abundant caution. The Commissioner who beard the revisions has found that Petitioner had received notices and applied for an adjournment and that the relevant notice issued by the Assessing Officer also shows that the Petitioner-company had been addressed as the managing agents of the Nellimarla Jute Mills Co. Ltd. It has further been found that the person who received the notice on behalf of the Petitioner stated that he received notice for Messrs. Nellimarla Jute Mills Company. Annexure D/2 to the counter shows that an Advocate appeared before the Taxing Officer on the basis of a vakalat Executed by the Petitioner-company on behalf of the Nellimarla Jute Mills Company and applied for an adjournment. It is true that this vakalat was filed on 26.7.1962, but it purports to have been executed on 25.6.1962. This shows that notice of the assessment proceeding was actually serve d on the Petitioner-company and the contention that the assessments were made without service of notice is not correct. Therefore, this ground also fails. 12. The last contention on behalf of the Petitioner is that in making assessments, principles of natural justice have not been observed as the said assessments have been arbitrarily made without any material as basis. On the other hand, for opp. parties, it is argued that as provided in Section 10, best judgments assessments have been made on failure of the dealer to furnish returns and the same has been based on the report of the Inspector a copy of which is at Annexure F/2 to the counter. There is no reference to the Inspector?s report in the orders at Annexure J or in the appellate orders. There is no reference to the Inspector?s report in the orders at Annexure J or in the appellate orders. The assessment orders also do not indicate that the basis for the best judgment assessments the particulars furnished in the Inspector?s report. In these circumstances, we are of opinion that the assessments were made arbitrarily without the Petitioner getting a reasonable opportunity of meeting or explaining the materials in the Inspector?s report which is said to have been relied upon by the Assessing officer in making the assessments. Such orders being violative of principles of natural Justice are liable to be quashed. 13. In the result, we allow the writ application and order that the impugned orders of assessment be quashed and the same remanded to the Taxing officer to pass fresh orders after giving an opportunity to the Petitioner to explain the materials furnished in the Inspector?s report. In the circumstances, there will be no order as to costs. G.K. Misra, C.J. 14. I agree.