P L D 1977 (W (PLP)

CONSTANTINE, J.

The question of law referred under section 66(1) of the Income-tax Act is "Whether in the facts and circumstances of the case the assessee Company has been rightly treated as resident and ordinarily resident of British India' for the account year 1947-48 relevant to the assessment for the charge year 1948-49." Under section 4A (c) of the Act a company is resident in British India in any year (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year. Under section 2 (3A) British India means, as respects any period before the 15th day of August 1947, the territories then referred to as British India but including Berar, and as respects any period after the 14th day of August 1947, the territories for the time being comprised in the Provinces of Pakistan. It is common ground that throughout 1947-48 the company's head office was in Calcutta. The control and management of the company's affairs was, therefore, situated wholly outside British India after the 14th August 1947 and wholly within British India before the 14th August 1947. The assessee had contended that the words "in that year" in section 4A (c) (a) mean "throughout that year". The department with which the Tribunal agreed contended that those words mean "at any time within that year". The Tribunal rejected the argument of Mr. Surridge that the word 'wholly' was used with reference to "in that year" and we think that the collocation of the words justifies the Tribunal's view. The Tribunal then put an example which is considered supported the department's view. It said: " Suppose, during the middle of the previous year a company closes down its business but during the period when the business was carried on the control and manage ment of its affairs was situated wholly in British India, can it be said that the assessee was not resident and ordinarily resident in that year merely because the business was carried on and the control and management was situated wholly in British India, during a part of the year only? If the answer be in the affirmative, then the assessee would escape the incidence of proper taxation." Mr. Dingomal on the other hand has argued before us that if the words "in that year" are read as "at any time in that year", then all companies whose control and management had been situated wholly in India and never in Pakistan and had not carried on any business in Pakistan during 1947-48 would be liable to Pakistan Income-tax. In construing a taxing enactment the rule is that effect must be given to plain language, but if the enactment is ambiguous the ambiguity is resolved in favour of the subject. I may cite Lord Wensleydale's familiar words quoted by Lord Halsbury and requoted by Lord Simonds in St. Auburn v. Attorney General (1951). "It is a well-established rule that the subject is not to be taxed without clear words for that purpose: and also, that every act of Parliament must be read according to the natural construction of its words". If words are susceptible not only of the meaning for which the State contends, but also and equally of another meaning favourable to the subject, then the latter meaning should be adopted. In subsection (b) of section 4A (c) the words "in that year" clearly cannot mean "at any time in that year"; otherwise we should get the remarkable result that if during a short period, for example three weeks in May, a company's income inside British India exceeded its income arising outside British India for that period, though the balance of income for the whole of the year was in the other direction, yet the company would be considered to be resident in British India. Again in section 4A (a) the legislature at three places inserted the words "for any time" before the words "in that year" so as to make the meaning clear. In order to determine whether a company was resident in British India in 1947-48, one has to ask oneself : Was the control and management of the company's affairs situated wholly in "British India" in 1947-48 ? One could reply to that question by saying "Yes" on the ground that between April and August 1947 it was situated in the territories then in British India, namely, Calcutta. But one could, in my opinion, with equal or better sense, reply "No" on the ground that from 15th August to the end of the year, the greater part of the year it was situated wholly outside British India (i. e, the Province of Pakistan). I think the truth is that a third meaning besides the two meanings contended for is attributable to the words "in that year". They can mean "in the course of that year taken as whole" You are not entitled to concentrate on a particular period during the year and exclude the rest of the year from consideration. On the other hand you are not entitled to insist that at all times throughout the year the position remains the same. It is to be noted that in this subsection we are dealing not with actions which take place at a particular point of time, but with continuing states of affairs, residence and situation of control. As to the Tribunal's example the reply is that whatever control existed in the course of that year taken as a whole was situated in British India in the course of that year taken as a whole. It is to be noted that this third meaning can be attached consistently to the words "in that year" wherever they occur in section 4A, and in particular to the second clause of the subsection dealing with residence of companies. I would, therefore, answer the reference in the negative and would direct the Commissioner of income-tax to pay the assessee the costs of this reference. WAHIDUDDIN, J.

It is with regret, but with respect that I have to differ from the conclusions reached by my esteemed and learned brother, Sir George Constantine in the above-mentioned matter. The reasons which have led me to arrive at a different conclusion are stated below. The facts out of which this reference has come before us under section 66(1) of the Income-tax Act are given in the statement of the case by the Income-tax Appellate Tribunal dated 7th August 1951, and the relevant portion of the same is reproduced below: "

2. The assessee is a limited company assessed for the charge year 1948-49 on the footing that it was 'resident and ordinarily resident' in British India in the relevant year of account, which is the financial year 1947-48. The company's head office has always been in Calcutta and the control and management of its affairs is situated wholly at that place. It is common ground that from the 1st April 1947, up to the 14th August 1947, the company had been 'resident and ordinarily resident' in British India as defined in section 2(3A) of the Pakistan Income-tax Act which runs as follows: " British India' means, as respects any period before the 15th day of August 1947, the territories then referred to as British India but including Berar, and as respects any period after the 14th August 1947, the territories for the time being comprised in the Provinces of Pakistan." Calcutta being outside the territories for the time being comprised in the Provinces of Pakistan, it must be taken that the control "and management of its affairs was situated wholly outside British India after the 14th August 1947. Nevertheless, the Income-tax Officer made the assessment on the footing that the company was 'resident and ordinarily resident' in British India in the account year 1947-48. Barring the controversy as to residence or ordinary residence no other objection was raised. The figures and method of computation of profits are not in dispute." The question of law which has been referred to us for decision in this matter is: " Whether " in the facts and circumstances of the case, the assessee company has been rightly treated as 'resident and ordinarily resident in British India' for the account year 1947-48 relevant to the assessment for the charge year 1948-49 ?" It would thus appear that so far as the question of facts are concerned, there is no dispute between the parties. -The assessee company is registered in India, has its head office at Calcutta and this controversy has arisen in view of the definition of 'British India' in Pakistan Income-tax Act. It was admitted before us by the parties that the business of the company before 14th August 1947 was wholly situated in Pakistan within the meaning of section 4(A) (c). Section 4(A) (c) is as follows: " A company is resident in British India in any year (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year." The learned counsel for the assessee-company however, contends that as the business of the assessee company was situated after 14th August 1947 wholly in Indian Dominions, the company concerned cannot be treated as resident in British India within the meaning of section 4(A) (c) of the Pakistan Income-tax Act. According to him, the interpreta tion of this particular subsection depends on the interpre tation that should be given to the words 'in that year'. He has vehemently argued that 'in that year' in this subsection means throughout the whole year and it should not be interpreted as in any part of the year. The learned counsel pointed out that if the interpretation covered the cases of those companies; the control and management of whose affairs was wholly situated in any part of the year, then it would mean that the company concerned would have two residences, i. e., both in Pakistan and in India. It was brought to our notice that this is a test case and there are number of other foreign companies assessed as resident companies although in fact their head offices are situated in Bharat. There exists however an agreement between Bharat and Pakistan with regard to the Income-tax levied for the period in question. Any Income-tax paid by the assessee company in this country is bound to be given credit to in the Indian Dominion, and therefore, so far as the assessment of this country is concerned, it is not going to be of a very far-reaching character. The only difference will be that the assessee will be allowed rebate of 10 per cent as business profit tax in the Indian Dominion, although they have to pay 1%6 in Pakistan. Mr. Dingomal the learned counsel for the assessee argued that the view taken by the department is erroneous, will result in hardship and startling consequences. It was argued that wherever the legislature wanted to make any person resident in any part of the year, subject to the Income-tax law, it had been so stated clearly and in unambiguous manner. It was further argued that if the interpretation of the department is accepted then it would mean that any company doing business in Pakistan even for a day will be treated as a resident company. He also pleaded that if the taxing statute was susceptible to two meanings then the one favour able to the subject should be adopted. The principles to interpret taxing statutes are as follows: In Oriental Bank v. Wright ((1880) 5 A C 842 at 856), their Lordships of the Privy Council observed that the intention to impose a charge F upon a subject must be shown by clear and unambiguous language. In Re Micklethwait ((1855) 1 Ex. 452, 456), Parke B. observed that it is a well-established rule that the subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. In Partington v. Attorney General ((1869) L R 4 H L 100, 122) Lord Kairns said:- I am not at all sure that, in a case of this kind a fiscal case-form is not amply sufficient; because, as I understand the principle of all fiscal legislation it is this: If the person sought to be taxed comes within the letter of the law, he must be taxed however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly such a construc tion is not admissible in a taxing statute, where you simply adhere to the words of the statute. "(italics are mine)." In Canadian Eagle Oil Co., v. R. ((1946) A C 119, at 140), Viscount Simon, L C said " In the words of the late Rowlatt, J. (in Cape Brandy Syndicate v.

1. R. C. ((1921) 1 K B 64, 71). whose outstanding knowledge of this subject was coupled with a happy conciseness of phrase 'in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used ". In another case in the House of Lords referred to in (1948) 1 A E R 616 at 625, Lord Thankerton observed :- "Counsel are apt to use the adjective 'penal' in describing the harsh consequences of a taxing provision, but if the meaning of the provision is reasonably clear, the Courts have no jurisdiction to mitigate such harshness. On the other hand, if the provision is capable of two alternative meanings the Courts will prefer that meaning more favourable to the subject. If the provision is so wanting in clarity that no meaning is reasonably clear, the Courts will be unable to regard it as of any effect". As pointed out by Craies on Statute Law, the rule just stated, while valuable as a caution, cannot be taken as Farrying the ordinary rules for construing all statutes including taxing Acts. In Attorney General v. Carlton Bank ((1899)2QB158at164), Lord Russell of Killowven, C. J. said :- "I see no reason any special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a taxing Act is to be construed differently from any other Act. The duty of the Court is, in'' my opinion, in all cases the same whether the Act to be construed relates to taxation or to any other subject viz., to give effect to the intention of the Legislature, as that intention is to be gathered from the language employed, having regard to the context in connection with which it is employed. The Court must no doubt ascertain the subject-matter to which the particular tax is by the statute intended to be applied, but when once that is ascertained, it is not open to the Court to narrow or whittle down the operation of the Act by considerations of hardship or business convenience or the like." I have given my best consideration the arguments advanced by the learned counsel for the assessee and am not prepared to accept the contention raised by him. The language of the section is very clear. It is not ambiguous and it has got only one meaning, namely, that if the control and manage ment of the affairs of a company is situated wholly in British India during the relevant year, it matters little whether it is for a major portion of the year or for a shorter period of the year : it will be considered as resident within the four corners of section 4 (A) (c). The argument of the learned counsel, that although it could be said that the management of the company was situated up to 14th August 1947, within Pakistan but the period was very short, and, therefore, it should not be given this meaning, is fallacious and is not warranted by the language of the section. The definition of 'British India' in the Pakistan Income-tax Act is a deliberate insertion and was made in order to cover such cases. The learned counsel for the appellant lost sight of the fact that once any connection' with a particular State is shown, it creates a nexus between the State and the individual, so as to make that individual subject to the taxing power of that State. This view is based in Australian decisions and it was adopted by their Lordships of the Federal Court in the decision Wallace Brothers & Co. Ltd. v. Commissioner of Income Tax Bombay(AIR1945FC9). There are a number of English authorities in which the principle of imposing tax on foreigners as resident, in spite of short stay, has been recognised. In fact, the duration of residence does not determine the question. In Halsbury's Laws of England Vol. 17 2nd Edition, p. 377, it is observed in 'ordinary resident' connotes some habit of life, and it is to be contrasted with extraordinary, occasional or temporary residence. The duration of residence does not determine the question, and the learned commentator in the notes has cited number of authorities. An American resident in America rented a house and shooting in Scotland, and spent two months there annually, was treated as resident in the United Kingdom vide Cooper v. Cadwalader (5 T C 101). In Loewenstein v. De Salis (10 T C 424), a Belgian resident abroad occupied for short periods a hunting bog in the United Kingdom belonging to a company controlled by him, and he was treated as a resident in the United Kingdom. It was on these considerations that Spens C. J. in A I R 1945 F C 9 at p. 12 Col. 2 observed as follows:- "Many systems of law have enacted that if a person resides in a country for six months, he must be deemed to be `resident' there for purposes of Income-tax though during the rest of the year he might have resided elsewhere. A person who receives a substantial business income from a country may well be regarded as receiving the protection of its laws and administration in the same degree as a person who resides there or carries on business there ; and if a person resident in a country for six months can be taxed even in respect of his foreign income earned, it may be, during the remaining six months, it is difficult to see any thing inherently objectionable in adopting the same basis when a person derives more than half his total income from business in a particular country. It is the person who is subjected to taxation in either cage and his connection with the taxing country is as substantial in the one case as in the other, to warrant both cases being treated alike." The above observation of his Lordship makes it very clear that the duration of the business of a corporation in a particular country is immaterial: and supports the view that what is to be seen is that in a particular year, as a whole, or during that year, or in any particular part of the year, the assessee- company's business affairs (management) are wholly situated in British India or in Pakistan or in the alternative its income in the whole of the year or during any part of the year in Pakistan exceeds its income without Pakistan. If the case of the assessees is covered by it, then it is to be treated as resident for the purpose of income-tax. If it does not fall, then the case will not be governed by the provisions of section 4 (A) (c). The point is so clear that I do not think it requires elaborate consideration or any authorities to support it. If various types of cases can be covered by a particular provision of law, then that does not mean that such provision of law is capable of several meanings or is susceptible to two or more meanings. If the argument of the learned counsel for the assessee is accepted and we read 'in that year' as in the greater part of the year ; then that would be adding something in the language of the section. It was pointed out to the learned counsel for the assessee during the course of the arguments, that cases could not be ruled out where a particular company would start business in Pakistan and after earning a substantial amount would close its business head office and shift it to some other country. Can in such circumstances the company concerned be allowed to escape the incidence of taxation merely because the management of the affairs of the company concerned was not situated throughout the year in Pakistan ? The learned counsel replied that according to his con tention the companies could adopt these methods to escape taxation. He further asserted that an assessee was entitled to avoid taxation by legitimate methods. This is true, but on the plain meaning of this subsection, this will be clearly its contravention and cannot be approved as a legitimate method to avoid taxation. In Colquhoun v. Brooks (14 A C 493 at 503, 511), the following observation was made by the Lord Hershall in a case where the question was whether a person resident in England was liable to pay tax under the Income-Tax upon profit made by him on a business in Australia, and not remitted to the United Kingdom ; "Notwithstanding the ingenious criticism to which they have been subjected . . . I think that, giving to the enactment, its natural meaning the facts stated do bring this case within it. It is urged however on behalf of the respondent, that if this construction be adopted, a foreigner residing for a short time only in this country would be subjected to taxation here in respect of the whole of his business earnings in his own country or else-where, and so to tax him would be opposed to international comity, and that a construction which would involve such a consequence cannot be correct. I think the learned counsel for the respondent are right in saying that the result which they point out would follow in the case of a foreigner but I do not feel satisfied that it would involve a violation of international law, and that the construction contended for by the Crown ought on that ground to be summarily rejected". Lord Macnaghten, dealing with the same case observed: "Moreover, although the contention on the part of the Crown, if carried to its legitimate conclusion, would certainly lead to startling results in the case of a foreigner temporarily resident in this Kingdom, I do not think that even those results are so plainly at variance with what is due to the comity of nations as to compel Your Lordships summarily to reject the contention without considering carefully what the Legislature has actually said". The real question therefore, is whether the case of the assessee is covered by section 4 (A) (c) of the Pakistan Income-tax Act. It seems to me that the provision of this subsection is couched in simple non-technical language and are wide enough to cover the case of the assessee-company. There is nothing in them which leads to two alternative meanings. It covers and is applicable to different set of facts and circumstances. It not only applies to a company whose affairs are found to be wholly situated in British India throughout the year but also to such a company whose affairs are found to be wholly situated in any part of the year: The point of time and continuation of activity is not the criterion of the test. It may be during the whole year, it may be during the major part of the year or it may be during a smaller part of the year. In one year a company may be found to be resident in Pakistan. In the next year it may not be so. What is to be seen is, whether in the relevant year taken as a whole, or in any part of it, the management of the affairs of a foreign company was wholly situated in Pakistan or not. Admittedly, the assessee-company's business had its office wholly situated in Pakistan up to the 14th of August 1947, and, therefore, the Income-tax authorities were right and perfectly justified in treating the assessee-company as resident for the purpose of assessment. Learned counsel for the assessee invited our attention to the case V. U. R. N. M. Subbayya Chettiar v. The Commissioner of Income Tax, Madras (A I R 1951 S C 101). The case is of no assistance, as it refers to section 4 (A) (b). In this case, a joint Hindu family was carrying on business in Ceylon and other foreign countries. Their manager stayed in India for a very short time to attend to income-tax matters and family litigation, yet as he failed to prove that the control and management of affairs is situated wholly without British India, he was subjected to income-tax as resident of India. In ml, opinion if a particular case falls and satisfies the provision of a taxing statute, then the Income-tax authorities must treat the corporation or individual concerned as resident, irrespec tive of any harsh consequences. So far as hardship is concerned, if the language of the section is clear, and is not capable of two alternative meanings, then it has never weighed with the Courts. After careful consideration of the facts acid circum stances of the case, I have no hesitation in holding that on the plain meaning of the language of the subsection, the assessee is liable to be taxed as resident company, and I would answer the question in the affirmative. The result is that the question referred to me is answered in favour of the Department. Assessee to pay costs of this reference. LARI, J.-(On difference of opinion between Constantine, J. and Wahiduddin, J.)-Two of the learned Judges of this Bench have differed as to the implication of the words "in that year" occurring in section 4 A (c) of the Pakistan Income-tax Act which runs as follows: "A company is resident in British India in any year (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year." My brother Sir Justice Constantine was of the view that the words "in that year" mean "in the course of that year taken as a whole" while my brother Wahiduddin, J. interpret ed the words as "at any time in that year". The difference falls within a Very narrow compass and I propose to confine myself to that. In construing a taxing enactment the rule as observed by Mr. Justice Constantine is that effect must be given to plain language but if the enactment is ambiguous the ambiguity is resolved in favour of the subject. Equally fundamental is the rule that if there is nothing to modify, nothing to alter, and nothing to qualify the language which the statute contains it must be construed in the ordinary and natural meaning of the words and sentences. There is nothing in section 4-A of the Act to show that the words "in that year" have been used in any technical sense. To my mind the word "in" has been used in its ordinary meaning. The following appears as the ordinary meaning of the word "in" in the Shorter Oxford English Dictionary of time "

1. Within the limits of a period or space of time.

2. In the course of.

3. Before or at the expiration of : within the space of.

4. Formerly (and still occasionally) used, where at, on. during, for or now in use, or where the preposition is omitted." The above definition is in accord with that I consider to be the natural meaning of the word "in". The words "in that year" do not imply all the 365 days of the year but refer only to a point of time which must fall within those 365 days. It was argued by Mr. Dingomal that in section 4-A (a) (ii) and (iii) words at any time in that year" have been used to indicate a part of the year. He over-looked that the insertion of the words "at any time" became necessary in section 4-A (a) (ii) because a particular period had been mentioned for maintaining a dwelling place. Same is the case with section 4-A (a) (iii) wherein two conditions had to be fulfilled, namely, a residence for a period amounting to 365 days within the preceding four years and residence for any time during the assessment year. I need not touch other grounds covered by my two brothers as there is no conflict as to approach while interpre ting a fiscal statute. The meaning of the words "in that year" being capable of only one interpretation, that is, at any time during the course of that year, it is not necessary to discuss the results that would follow from this interpretation) or the interpretation that is sought to be put upon by the assessee. In agreement with my brother Mr. Justice Wahiduddin I would answer the reference in favour of the Department. Assessee should pay the costs of this reference. A. H. Reference answered.