P L D 1973 Lahore 361 (PLP)

MUSHTAQ HUSSAIN, J.‑--The Government of West Pakistan, the Pakistan Industrial Development Corporation and the: Guest Agency Company Ltd., entered into an agreement for the 'promotion' of a public limited company under the name and style of Haripur Rosin & Turpentine Factory Limited. This agreement was executed on the 27th February 1958. The Company was duly incorporated under the Companies Act on the 18th December 1959, and started functioning on the 1st March 1960. In anticipation of the incorporation, the aforesaid promoters had started business on the 1st April 1958. This business was taken over by the incorporated company on the 1st March 1960.

2. When the time came to assess this business to income‑tax the Income‑tax Officer assigned the status of an Association of Persons to the three promoters for the charge year 1959‑

60. The following year was split up into two portions. Up to 29th February 1960, the status of an Association of Persons was continued while for the period 1st March 1960. onwards it was the company which was assessed and not the Association of persons.

3. The company felt aggrieved and filed an appeal directly to the Tribunal. The Company took up the stand that the promoters had started the business on behalf of and in anticipa tion of the incorporation of the company and the promoters were, therefore, not liable personally as an Association of Persons for the profits made before the incorporation of the company.

4. The Tribunal did not agree with the company and rejected the appeal on 10th April 1965. The company applied for the reference of the question of law involved in this case to this Court for opinion. The departmental representative who appeared before the Tribunal suggested that the question be drawn up in a different manner. The Tribunal agreed with the departmental representative and referred the following question to us for the opinion :‑ Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the income of the period of prior to the incorporation of the company could be legally assessed in the hands of its promaters in the status of an Association of Persons?

5. Section 10 of the Income‑tax Act lays down that‑ "(1) Subject to the provisions of this Act, the tax shall be payable by an assessee under the head Profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him."

6. There is no doubt in the present case that the assessment to tax has been made under the head Profits and gains of business. The same can, in accordance with the provisions of this section, be made only in respect of the business carried on by the assessee. The question is who carried on the business in the period prior to incorporation‑the Association of Persons or the incorporated company ?

7. Salmond in his book on Jurisprudence (11th Edition) states at page 350 that‑ So far as legal theory is concerned, a person is any being whom the law regards as capable of rights or duties. Any being that is so capable is a person, whether a human being or not, and no being that is not so capable is a person, even though he be a man. Persons are the substances of which rights and duties are the attributes. It is only in this respect that persons possess juridical significance, and this is the exclusive point of view from which personality receives legal recognition. Persons as so defined are of two kinds, distinguishable as natural and legal. A natural person is a human being. Legal persons are beings, real or imaginary, who for the purpose of legal reasoning are treated in greater or less degree in the same way as human beings.

8. The company in the present case was registered under the Companies Act on 18th December 1959, and the question is whether it was a "person" in the eye of law before that date. It has not been and it cannot be contended that the company is natural person. It is a legal person and has therefore, to come into existence under some law. Section 23 of the Companies Act runs as follows :‑ "(1) On the registration of the memorandum of a company, tile registrar shall certify under his hand that the company is incorporated, and in the case of a limited company that the company is limited. (2) From the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorundum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum, capable forth with of exercising all the functions of an incorporated company, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act." A company, therefore, comes into being from the date of incorporation mentioned in the certificate of incorporation which n the present case is 18th December 1959. Before that date, it was not a body corporate as defined under the Companies Act. It became a legal entity as soon as it was incorporated and was on that date clothed with a legal personality. In other words, it was not in existence on any day prior to the date of its registration with the Registrar, Joint Stock Companies.

9. One could ask if some one not in existence can carry on any business? The answer has to be an emphatic no. Since the tax under section 10 of the Income‑tax Act is in respect of business carried on by the assessee the question of any assessment to it would not arise at all in a case where C the assessee was not in existence and, therefore, not in a position to carry on any business. It is, therefore, clear that a company could not be taxed in respect of the business carried on by the promoters before the date of its incorporation.

10. Can it be said that since the company has taken over the business from the promoters, it has ratified the agreement between the promoters and itself and is, therefore, liable for tax? This is not possible. It was held in Natal Land & Colonization Company Limited v. Pauline Colliery & Development Syndicate, Limited (1904 A C 120 (P C)) that‑ "The contract was made with Mrs. de Carrey, and even if she can be treated as having made it on behalf either of the unincorporated syndicate who were the promoters of the respondent‑company, or on behalf of the company itself when incorporated, it is clear that a company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence. It is unnecessary to cite all the cases in which this has been decided from Kelner v. Baxter L R 2 C P 174." If, therefore, the company is not entitled to take advantage of or derive benefit from the contract entered into by the promoters before it came into existence how can it be made liable for any tax arising out of the business carried on by the Association of Persons in pursuance of that contract. Our conclusions, therefore, are‑ (1) That the petitioner‑company came into existence only on 18‑12‑59 when it was incorporated ; (2) that not being in existence before that date it could not carry on any business either itself or through any agent including the promoters : (3) that under section 10 of the Income‑tax Act liability to, assessment exists only in respect of the person who carries on business. This may be carried on either directly or through agents (4) that since the company was not in existence during the period it seeks to have itself taxed for the business carried on by the Association of Persons, it could not carry on any business itself or through any agents and is, therefore, not liable to tax for any profit or gain derived during that period and (5) that the company took over the business from 1st March. 1960, and is not liable to any tax for any business carried on prior to that period.

11. The question referred to us is, therefore, answered in the affirmative. The Commissioner of Income‑tax shall be entitled to, costs from the petitioner. K. B. A. Reference answered.