CHIVERS & SONS, LTD v. COMMISSIONER OF INCOME TAX

096-NLR-NLR-V-39-CHIVERS-&-SONS,-LTD-v.-COMMISSIONER-OF-INCOME-TAX.pdf


342
Chivers & Sons, Ltd. v. Commr. of Income Tax.
1937Present: Moseley J. and Fernando AJ.
CHIVERS & SONS, LTD. v. COMMISSIONER OFINCOME TAX.82—(Intg/.) Special.
Income tax—Sale of goods by non-resident person—Agent instrumental in
selling goods—Liability of non-resident person to pay tax—Income Tax
Ordinancet No. 2 of 1932, ss. 5 Cl) (b) and 34.
A firm in C.eylon stocks and sells, among other goods, the goods manu-factured by the appellants in England and shipped to Ceylon.
The local firm also displays samples of appellants’ goods, canvasses fororders, and through their indenting department arranges for the supplyon order from local dealers of goods shipped by the appellants.
The firm receives a commission from the appellant for all ordersreceived surd executed by them on indents placed through them.
The firm is bound to pay to the appellant the value of goods orderedon indents placed through them if the local dealers fail to pay theirvalue.
Where dealers place orders directly with the appellants, the firmreceives no comnjission.
There was no formal agency agreement between the appellants and thefirm, and the appellants have no sole agent in Ceylon.
Held, that the firm in Ceylon was instrumental in selling the goodsof the appellants within the meaning of section 34 of the Income TaxOrdinance, and that the profits derived by the- appellants from suchsale were liable to Income Tax under section 5(1) (b) of the Ordinance.
fp HIS was a case stated for the opinion of the Supreme Court undersection 74 of the Income Tax Ordinance, No. 2 of 1932, by theBoard of Review constituted under that Ordinance.
The questions were whether upon- the facts stated in the head note (1)the local firm was acting on behalf of a non-resident person within themeaning of section 34 of the Ordinance; (2) whether the firm wc~
Chivers & Sons, Ltd. v. Commr. of Income Tax.
343
instrumental in selling or disposing of the goods Of the appellants;
(3) whether the profits arising to the appellants from the sale of theirgoods on indents placed through the firm should be deemed to be derivedby the appellants from business transacted in Ceylon within the meaningof section 34 and therefore liable to Income Tax under section 5 (1) (b) ofthe Ordinance.
H. V. Perera, K.C. (with him N. Nadarajah), for the assessee,appellant.—The Commissioner has held that there is no liability arisingunder section 5 (1). Upon that finding there can be no liability at all.Section 34 (1) is only explanatory. The point for decision is whether theprofits in question arise in or are derived from Ceylon. F. X. Pereira& Sons stock Chivers’ goods on their own account. – It is clear from .theform of the indent A that F. X. Pereira & Sons act on behalf of theperson indenting the goods. They cannot therefore be regarded asacting on behalf of Chivers. Their position is that of “ stockists ”,like that of any other dealer, who stocks the goods of Chivers. TheCommissioner admits that “ buying agencies ” are not liable. There isno difference between F. X. Pereira & Sons in this connection and a buy-ing agency. It cannot be said that F. X. Pereira & Sons are instrumentalin selling the goods of Chivers. The indent is accepted in England.Chivers may or may not accept the indent. F. X. Pereira & Sons, Ltd.,guarantee payment by the person indenting. They are paid acommission for this service. F. X. Pereira & Sons, Ltd., would be“ instrumental-” within the meaning of section 34, if only the last stepremains to be taken, in the matter of accepting the indent. That is notthe case here. And F. X. Pereira & Sons do nothing between the pointof time at which the offer is made by the indentor and the point of timeat which it is accepted by Chivers. They act as a Post Office. F: X.Pereira & Sons. are no more instrumental in selling Chivers’ goodsthan the proprietor of a newspaper would be .who advertises Chivers’goods. Counsel cited Anglo-Persian Oil Co., Ltd. v. Commissioner ofIncome Tax Lowell and Christmas, Ltd. v. Commissioner of Taxes *, andGreenwood v. Srhidth (F. L.) & Co.
J. E. M. Oheyesekere, C.C., for the Commissioner of .Income Tax.—Theliability to pay income tax is provided by section 5 (1) of, OrdinanceNo. 2 of 1932. In the case of a person not resident in Ceylon rfe must beshown that the income sought to be taxed arises in or is derived fromCeylon. The expression “ profits and income arising in or derived fromCeylon ” is defined in section 5 (2) to include, inter alia, all profits derivedfrom business transacted in Ceylon, whether directly or through anagent. Chapter VIII. of the Ordinance contains provisions relating tospecial cases, and in division F, special provision is made as regards theliability of non-resident persons. Section 34 (1) occurs in this chapter.If, therefore, it is shown that a person in Ceylon, acting on behalf of anon-resident person, is instrumental in selling or disposing of anyproperty, the profits arising from such sale or disposal is to be deemed,to be derived by the non-resident person from business transacted by
■ (1035) SS N. L. S. 348.* {1908) A. C. 46.
{1982) 1 A. C. 411.
344 FERNANDO A.J.—Chivers & Sons, Ltd. v. Commr. of Income Tax.
him in Ceylon. Section 34 (1) must be read with section 5 (2) and inturn with section 5 (1). If, therefore, it is shown—
that the appellants were acting on behalf of Chivers & Sons, Ltd.,
who are a non-resident person ; and
that they have been instrumental in selling goods belonging to
Chivers & Sons, Ltd.;
there is a liability to pay tax on the part of Chivers & Sons, Ltd.Question (a) is one of fact and the only question for determination by theSupreme Court is whether there was sufficient evidence before the Boardof Review upon which they could find that the appellants were in factacting on behalf of Chivers & Sons, Ltd. The expression “ acting onbehalf of a non-resident person ” occurring in section 34 (1) connotessomething wider than the relationship of agency which, for the purposesof this Ordinance, is defined in section 2. It is submitted that what isnecessary is to prove that the appellants were acting generally on behalfof Chivers & Sons, Ltd. It is unnecessary to show that they were agentsin the strict sense of the term or. that they had authority on behalf ofChivers & Sons, Ltd., to make binding contracts. There is no doubt,as regards question (b), that .the appellants were instrumental in sellingthe goods of Chivers & Sons, Ltd. They displayed their goods, can-vassed for orders and forwarded indents direct to Chivers & Sons, Ltd.For so doing they'were paid a commission. There is no reason to supposethat this commission was paid only on account of the liability theyaccepted to make good any default on the part of the indenting parties.Counsel referred to the case of the Anglo-Persian Oil Co., Ltd. v. Com-missioner of Income Tax (supra). He relied upon the interpretation ofsection 34 given in that case by Akbar J. He distinguished the cases Lowelland Christmas, Ltd. v. Commissioner of Taxes (supra), and .Greenwood v.Smidth (F. L.) & Co. (supra) cited by Counsel for the appellant on theground that they were concerned in those cases in interpreting theprovision of the English Act as to whether the profits were derived from atrade exercised in England. ■ There is no provision in the English Actcorresponding to section 34 (1) of our own Ordinance. Counselsubmitted that -the questions stated by the Board of Review must beanswered in the affirmative.
H. V. Perera, K.C., in reply.
Cur. adv. vult.
November 1, 1937. Fernando A.J.—
This is a case stated under section 74 of Ordinance No. 2 of 1932by the Board of Review constituted under that Ordinance for .theopinion of this Court on the questions of law involved in the assessmentmade on Messrs. Chivers & Sons, Limited, who are referred to as theappellants. The facts of the case as stated are : —
That Messrs. F. X. Pereira & Sons who are residents in Ceylonstock and sell, among other goods, the goods of the appellants.
That they display samples of the appellants’ goods.
FERNANDO A.J.—Chivers & Sons, Ltd. v. Commr. of Income Tax. 345
That they have an indenting department which arranges for thesupply on orders from local dealers of goods shipped by the appellantsand others.
That F. X. Pereira & Sons from time to time canvass for orders forthe appellants’ goods.
That F. X. Pereira & Sons supply goods when so ordered from theirstocks, or if that is not possible, the dealer forwards to them a form ofindent addressed to the appellants.
That F. X. Pereira & Sons received a commission from the appellantsfor all orders received and executed by them on indents placed through
X. Pereira & Sons.
That sometimes dealers do place orders directly with the appellants,and that on such orders, F. X. Pereira & Sons get no commission.
That F. X. Pereira & Sons have to pay to the appellants the value ofthe goods ordered on indents placed through them if the local dealersfail to pay for the goods.
That there is no formal agency agreement between the appellantsand F. X. Pereira & Sons, and that the appellants do not have any soleagent in Ceylon.
The taxable profits derived by the appellants from orders placed withthem through F. X. Pereira & Sons were assessed at Rs. 174, and the taxpayable upon such profits was assessed at Rs. 20.88.
The questions for the opinion of this Court are stated to be as follows : —
Whether upon the facts F. X. Pereira & Sons were acting on behalf ofa non-resident person within the meaning of section 34 of the Ordinance.
Whether they were instrumental in selling or disposing of the appel-lants’ goods. (3) Whether the profits arising to the appellants from thesale of their goods on indents placed through F. X. Pereira & Sons shouldbe deemed to be derived by the appellants from business transacted inCeylon within the meaning of section 34, and therefore liable to IncomeTax under section 5 (1) (b) of the Ordinance.
Section 5 of the Ordinance provides that Income Tax shall be chargedin respect of the profits and income arising in, or derived from Ceylonin the case of a person who is not resident in Ceylon, and sub-section (2)provides that for the purposes of this Ordinance profits and incomearising in or derived from Ceylon ” includes all profits and income derivedfrom business transacted in Ceylon whether directly or through an agent.The word “ agent ” for the purpose of this section is defined by section 2as including any person in Ceylon through whom the non-resident personis in receipt of any profits or income arising in or derived from Ceylon.Section 34 occurs in chapter VIII. which contains provisions relating tospecial cases, and the special case dealt with by chapter VIII.—F is theliability of non-resident persons. With regard to such non-residentpersons, section 34 (1) provides that where a person in Ceylon acting onbehalf of a non-resident person sells or disposes of any property, the profitsarising from such sale shall be deemed to be derived by the non-residentperson from business transacted by him in Ceylon, and the person inCeylon who acts on his behalf shall be deemed to be his agent for all thepurposes of this Ordinance. It also provides that where a person in Ceylonacting on behalf of a non-resident person is instrumental in selling or
346 FERNANDO A.J.—Chivers & Sons, Ltd. v. Commr. of Income Tax.
disposing of any property, the profits arising from the sale are similarlydeemed to be derived from business transacted in Ceylon. This sectionwas considered by this Court in Anglo-Persian Oil Co., Ltd. v.Commissioner of Income Tax'1, and it was held that section 34 is supple-mentary to section 5 and was inserted in the Ordinance to include con-tracts which have been entered into as a result of the efforts of agentsin Ceylon of a foreign principal, even when such contracts have beenfinally concluded outside Ceylon. Akbar J. followed the English case- ofMaclaire & Company v. Eccott in which it was laid down that in the caseof a merchant’s business, the trade is exercised or carried on at the placewhere the contracts are made. Referring to that part of section 34,which deals with sale or disposal, and that was the only part of thesection that was considered in that case, Akbar J. held that a sale ordisposal referred to in tlie section was a definite legal act, and did notinclude a mere delivery of goods in pursuance of a contract made outsideCeylon. He then proceeded to consider the effect of the words,“ instrumental in selling or disposing ” and observed that these wordswere intended to catch up acts of canvassing which result in contractsoutside Ceylon if the Crown can prove that the agent was instrumentalin getting the sale – or disposal fixed. Koch J. in the same case dealing,with the words “ instrumental in selling ” held that these words meantaiding or assisting in bringing about the contract of sale which but forsuch aid and tancassise may never come off. “ The non-resident person ”he observed, "will also be liable, although the sale was actually effectedby him if in point of fact his agent in Ceylon acting on his own behalfwas instrumental in selling the property ”. There was no evidence ledin that case to prove that the agent in Ceylon had anything to do withthe contract of sale which was entered into in England, and it was notcontended in that case that the agent in Ceylon had been instrumentalin bringing about the contract of sale. In this case, however, it hasbeen found as a fact that F. X. Pereira & Sons stocked goods, whichbelonged to Chivers & Sons, Limited, displayed their goods, kept samplesof them, canvassed orders for those goods and received a commission onany order which was accepted. Obviously these acts were all doneon beftfdf of Chivers & Sons, Limited, and the correspondence producedbefore the Commissioner shows clearly that they were done at the requestof Chivers & Sons, Limited.
When the purchaser had after seeing the samples, .and having ascer-tained the price decided to-order the goods, he entered into an indentwhich appears to have been a printed form supplied to him for thatpurpose. That indent was forwarded by F. X. Pereira & Sons to Chivers& Sons, Limited, and the latter on receiving the indent accepted it andsent the-goods. It seems to me that F. X. Pereira & Sons had done,everything it was possible for them to do to bring about a contract,although they had no authority from Chivers & Sons, Limited, to enterintp a contract themselves on their behalf. While it is correct to saythat the sale of the goods by Chivers & Sons, Limited, did not take placein Ceylon inasmuch as they accepted the offer in England, there is little
1 38 N. L. JR. 348.
12 Times Law Reports 416.
FERNANDO A.J.—Chivers & Sons, Ltd. v. Commr. of Income Tax. 347
doubt to-my mind that F. X. Pereira & Sons had done everything thatwas necessary to bring about a contract. They were, therefore, instru-mental in selling within the meaning of section 34, and it seems obviousthat in acting with that object, they were acting on behalf of theassessee-
Mr. Perera for the appellants contended that the Indentors constituted
X. Pereira & Sons their agent, and he referred to the condition in thatform by which the purchaser authorised and requested F. X. Pereira &Sons to order and import the goods on their account. For this reasonhe argued, that when that indent was signed, F. X. Pereira & Sonsbecame the agent of the purchaser, and that they therefore ceased to bethe agent of Chivers & Sons. Limited, or to act on their behalf. If how-ever, it is admitted that they were acting on behalf of Chivers & Sonsup to the time of that indent, it is difficult to see how the act of the.purchaser in signing the indent deprived F. X. Pereira & Sons of theirauthority to act on behalf of Chivers & Sons, Limited. It is not necessaryin this case to consider whether the indent did constitute F. X. Pereira &Sons the agents of the Indentor and whether they ceased, therefore, to bethe agents of Chivers & Sons because the only question before us is,whether by canvassing for the orders, F. X. Pereira & Sons had beeninstrumental in bringing about the sale by the assessee, and on thatquestion I see no difficulty.
Mr. Perera also argued that the person who is instrumental in sellinggoods must do something between the offer by the purchaser and theacceptance by the seller. It is difficult to my mind to conceive of anyact which a third party could or should do between offer and acceptance:If A has induced B to make an offer to C on terms which A knows will beacceptable to C, the only act which is necessary to complete the contractis the acceptance by C of those terms. If A is aware that C will acceptthose terms all he has to do is to see that the'offer is communicated to C.In my opinion this contention of Mr. Perera must fail.
The English authorities cited to us are really not relevant inasmuchas they deal with the question as to where a sale in fact takes place,which question was considered by this Court in Anglo-Persian Oil Co.,Ltd. v. Commissioner of Income Tax (swpra).
Section 34 must I think in this Ordinance be read along with section 5,and the effect of section 34 is to include under profits arising in or derivedfrom Ceylon, all profits from the sale of goods where such sale has beenbrought about through the instrumentality of a person in Ceylon actingon behalf of the seller who is outside Ceylon, and in spite of the fact thatlegally the transaction of the business or the sale takes place outsideCeylon. Section 34 provides that those profits shall be deemed to bederived from a business transacted in Ceylon..
The appeal, therefore, must be dismissed, and the appellant will payto the respondent his costs of this appeal as taxed by the Registrar.
Moseley J.—I agree.
Appeal dismissed.