Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9
PETITIONER:
MECLEOD & CO. LTD.
Vs.
RESPONDENT:
STATE OF ORISSA & ORS.
DATE OF JUDGMENT23/11/1983
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION:
1984 AIR 590 1984 SCR (1) 865
1984 SCC (1) 434 1983 SCALE (2)750
ACT:
Orissa Taxation (on Goods carried by Road and Inland
Waterways) Act, 1959 validated by Act of 1968-S. 2(5)-Read
with explanation thereto-Definition of dealer-Interpretation
of. Manager or agent of non-resident dealer need not have
place of business or residence in Orissa State to be deemed
to be dealer. Dealer-Whether non resident Dealer-Test for
determining residence.
HEADNOTE:
The appellant-company was appointed as ’Managing Agent’
and Secretary & Treasurer’ respectively by two independent
and separate public limited jute mills companies. These jute
mills had their registered office at Calcutta and additional
places of business in several parts of the country including
Kendupatna in the State of Orissa and were registered as
’dealers’ under the orissa Taxation (on Goods carried by
Road and Inland Waterways) Act, 1959. The appellant-company
did not do any business nor had any place of its business in
any part of the State of Orissa. . But the appellant-company
looked after the work of storing jute of the two jute mills
in their godowns at Kendupatna in the State of Orissa. The
Assistant Tax-officer passed ex-parte assessment orders
against the appellant-company on the business of stocking,
storing and carrying jute by boats of the jute mills in the
State of Orissa on the basis that the appellant-company was
a ‘dealer’ (as agent of both the jute mills) within the
meaning of s. 2(5) read with the Explanation thereto of the
Act. The Assistant Commissioner of Taxes dismissed the
appeal and Commissioner of Taxes dismissed the revision
petition filed by the appellant-company against the
assessment orders. In a writ petition, the High Court
negatived the contention of the appellant-company that it
was not a dealer. In this appeal, the appellant- company
contended: (I) that in order to be deemed to be a dealer
under s. 2(5) read with Explanation thereto a manager or an
agent of a dealer must reside or have a place of business in
the State of Orissa and since the appellant-company did not
have any such place of business in the State of Orissa it
was not a dealer under that section, and (2) that the jute
companies (Principals) were not non-resident dealers’ as
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9
required by the Explanation to s. 2(5) since each one had a
place of business of its own in the State of Orissa.
Dismissing the appeal,
^
HELD: The appellant-company was a dealer within the
meaning of s. 2(S) read with the Explanation thereto of the
Orissa Taxation (on Goods carried by Road and Inland
Waterways) Act, 1959. [876 E]
866
Under the Explanation to s. 2(5) of the Act, 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 whether he resides inside or outside the
State. The artificial definition of a ’dealer’ under the
Explanation is merely an enabling provision which
facilitates the assessment against a non-resident dealer but
the provision does not require that the manager of the agent
should have either a residence or a place of business within
the State of Orissa. There is nothing either in the main
definition or in the Explanation to suggest that the manager
or agent of the dealer (Principal) should have his own
business within the State of Orissa before he could be
proceeded against or assessed under the Act. All that the
Explanation requires is that the manager or the agent should
store such goods of the non-resident ‘dealer’ within the
State of orissa but that does not mean that for such purpose
the manager or the agent either reside or have a place of
business within the State of orissa; even if he carries out
the operation of storing the goods and carrying the same by.
motor boats within the State of Orissa from outside the
State it would suffice. [871 G-H; F; 872 B-C]
In the instant case, it is true that during the
relevant period it was the jute companies (the Principals)
who carried on their jute business at Kendupatna within the
State of Orissa and that the appellant-company had n
business of its own anywhere in that State but it was
looking after the business of the Principals as their agent
at Kendupatna and such business included the operation of
stocking or storing of jute in their godowns at Kendupatna
and carrying the same by motor boats. [871 C-D]
In respect of an artificial person like a company the
test to determine its residence will have to be considered
in the context of the law prescribing the criteria in that
behalf. So far as law of taxation is concerned, ordinarily
the residence of a company will be at the place where the
actual management of the company is carried on and that if
this is done at several places it may have a dual residence
but in that case at least some part of the superior and
directing authority of the company must be present at the
place where its residence is sought to be established. [873
A; 874 F-G]
Palmer’s Company Law (23rd-Ed.) Vol. I at pages 101 to
103, referred to.
The test of residence is not registration, but where
the company docs its real business, where the central
management and control abides. It is the actual place of
management of the company and not the place where it ought
to be managed which fixes its residence. [875 B]
Buckley on the Companies Act (14th Edn.), Vol. I at
pages 299; Egyptian Delta and Investment Co. v. Todd.,
[1929] A. C. I and De Beers Consolidated Mines v. Howe,
[1906] A. C. 455 referred to.
In the instant case both the principals (the jute
companies) had their registered offices in Calcutta (West
Bengal), that their principal businesses were carried on in
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9
Calcutta (West Bengal) and that the Central management and
867
control of the businesses was done from Calcutta. It is true
that these two Jute companies had storage equipment and
godowns at Kendupatna in the States of Orissa but on their
own showing (vide Certificates of Registration) at
Kendupatna they had ’additional places of businesses’. As
the central management and control of the two companies’
businesses obtained in Calcutta (West Bengal), the two jute
companies would be non-resident dealers in the State of
orissa. [876 A-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 43 of
1972.
Appeal by Special leave from the Judgment and order
dated the 16th April, 1971 of the Orissa High Court in
O.J.C. No. 24 of 66.
V. S. Desai, S. Bhandare and T. Sridharan with him for
the Appellant.
Govinda Mukhoty, G. S. Chatterjee and Sujeet K
Bhattacharya for the Respondents.
The Judgment of the Court was delivered by
TULZAPURKAR, J. This appeal by special leave raises the
question whether the appellant-company could be regarded as
a ’dealer’ within the meaning of sec.2(5) read with the
Explanation thereto of the Orissa Taxation (on goods carried
by Road and Inland Waterways) Act, 1959 (hereinafter
referred to as the Orissa Taxation Act and which was
validated by Act of 1968) and as such was liable to be
assessed under the Act for the quarters covering the period
30-9-1960 to 31-3-1962 ? The question which pertains to the
proper interpretation of the aforesaid provisions of the Act
arises in the following circumstances.
Nellimarla Jute Mills Co. Ltd., and Chitavalsah Jute
Mills Co. Ltd. are two independent and separate companies
having their registered offices at Mecleod House, 3, Netaji
Subhas Road, Calcutta and additional places of business in
several part of the country including one at Kendupatna,
P.O. Kendupatna, District Cuttack, in the State of Orissa.
These two public Limited Companies primarily carried on the
business of jute manufacturing and owned jute mills in
different parts of the country, such as, Nellimarla Jute
Mills Co. Ltd,. Owing Jute Mills at Elore in Andhra Pradesh
and Chitavalsah Jute Mills Co. Ltd. Owing Jute Mills at
Chitavalsah in Andhra Pradesh. The appellant-company (M/s.
Mecleod & Co. Ltd. having its Registered office at Mecleod
House, 3, Netaji Subhas Road, Calcutta), by
868
virtue of Agreements with the said two jute mills was
appointed the ’Managing Agent’ for Chitavalsah Jute Mills
Co. Ltd. and the ’Secretary & Treasurer’ for Nellimarla Jute
Mills Co. Ltd. The appellant-company did not do any business
nor had any place of its business in any part of the State
of Orissa But as the Managing Agent of Chitavalsah and as
the Secretary and Treasurer of Nellimara looked after the
work of storing their jute in their godowns at Kendupatna,
District Cuttack, State of Orissa. It may be stated that
under cl.(4) of the Agreement dated 7-10-1960 with
Nellimarla the appellant-company was precluded from and was
"not entitled (unless and except to the extent they are
authorised by the Board of Directors) to sell any goods or
articles manufactured or produced by the Company or to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9
purchase, obtain, or acquire machinery stores, goods or
materials for the purposes of the Company or to sell the
same." In other words, the prohibition contained in cl.(4)
of the Agreement with Nellimarla merely pertained to selling
or purchasing of goods or materials for the purposes of the
company but left intact the appellant-company’s powers to
store jute of the Company in its godowns at Kendupatna in
the State of Orissa.
Since the two jute mills carried on the trade of
purchasing and storing of jute, inter alia at Kendupatna,
they were registered as ’ Dealers’ under the Orissa Taxation
Act and the Rules framed thereunder. each one having a
separate Registration Certificate. It may be stated that
Nellimarra had filed Returns of their turn-over for all the
quarters from 30-9-1959 to 30-6-196’’ and had paid the
admitted tax for the said period under the Act. Similarly,
ChitavaIsah had filed Returns of their turn-over for all
quarters from 30-9-1959 to 31-3-1960 and had paid the
admitted tax for the said period under the Act. It appears
that thereafter some time in 1963 the said jute companies
filed writ petitions in the Orissa High Court under Art 226
of the Constitution challenging the validity of the original
Act of 1959 as also the Validation Act of 1968 and obtained
interim stay of proceedings under the said Act but we were
informed by counsel that ultimately the challenge to the
validity of the Acts failed; however, we are not concerned
with those proceedings in this appeal. In the meanwhile,
seven ex parte assessment orders were passed against the
appellant-company by the Assistant Tax officer for quarters
covering the period from 30-9-1960 to 31-3 1962 on the
business of the said two companies on the basis that
appellant-company was a ’dealer’ (as agent of both the
companies) within the
869
meaning of sec.2(5) read with the Explanation thereto and
had carried on the business of stocking or storing jute and
carrying the same by motor boats at Kendupatna in District
Cuttack, State of Orissa and the appellant-company received
a notice of demand along with the said assessment orders
claiming a total amount of Rs. 74,125 inclusive of penalty.
Against the said assessment orders the appellant-company
preferred appeals under sec.12(1) of the Act to the
Assistant Commissioner of Taxes but the. appeals failed. The
appellant-company preferred revisions under sec.12(3) of the
Act to the Commissioner of Taxes, Orissa but the
Commissioner of Taxes by his order dated 15th October, 1965
dismissed the-revisions and confirmed the Assessment orders
made against the appellant-company. Aggrieved by the order
of the Commissioner of Taxes the appellant-company
approached the High Court by means of a Writ Petition under
Art.226 of the Constitution and challenged the assessments
made against them on the basis that as agent of the two Jute
Companies it was not a ’Dealer’ within the meaning of
sec.2(5) read with the Explanation thereto of the Orissa
Taxation Act. The assessment orders were also challenged on
the ground that these had been passed without following the
principles of natural justice inasmuch as the appellant-
company had no opportunity to meet the materials,
particularly the Inspectors Report relied upon by the
Assistant Taxing officer while making the assessments. The
High Court by its judgment dated 16th April, 1971 negatived
the appellant-company’s principal contention that it could
not be regarded as a ’Dealer’ within the meaning af sec.2(5)
read with Explanation thereto of the Act and therefore it
could not be assessed at all under the Act but set aside the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9
assessment orders and remanded the assessment proceedings to
the taxing authority to pass fresh orders on the ground that
through notice of the assessment proceedings had actually
been served on the appellant-company the assessment orders
had been made arbitrarily without the appellant-company
getting a reasonable opportunity of meeting or explaining
the materials in the Inspector’s Report which had been
relied upon by the Assessing officer for making the
assessment. Though the matter has been remanded by the High
Court for fresh assessment, the principal contention or the
appellant-company which goes to the root of the matter
having been negatived by the High Court the appellant-
company has preferred this appeal to this Court challenging
the High Court’s view thereon.
870
Counsel for the appellant-company put forward a couple
of contentions in support of his case that on the facts and
circumstances obtaining here in regard to the business of
stocking or storing their jute and transporting the same by
motor boats within the State of Orissa which was done by the
two jute companies at Kendupatna in District Cuttack, the
two jute companies (the Principals) who had registered
themselves as ’dealers’ under the Act could be assessed by
the taxing authorities and not the appellant-company who was
not a ’dealer’ as defined by sec.2(5) read with the
explanation thereto of the Act. In the first place Counsel
urged that though it was true that the appellant-company was
acting as the agent of the two jute companies during the
relevant quarters it did not have any place of business
either at Kendupatna or anywhere else in the State of Orissa
and unless it had such place of business in the State of
orissa which could facilitate the assessment, the appellant-
company could not be proceeded against or assessed. In other
words, the . submission was that under the Explanation an
artificial definition of a ’dealer’ by means of a deeming
clause had been provided with the object of facilitating the
assessment proceedings against non-resident principals which
could not be achieved if the agent was also a nonresident in
the State of orissa, Secondly, counsel contended that jute
companies (Principals) were not ’non-resident dealer’ as
required . by the Explanation since each one had a place of
business of its own at Kendupatna District Cuttack. Relying
on these aspects counsel for the appellant company contended
that on true construction of - the relevant provision the
appellant company could not be held to be a dealer and as
such the assessing authority had no jurisdiction or power to
proceed against or assess the appellant-company in respect
of the business of the principals (the jute companies). For
the reasons which we shall indicate presently we do not find
any substance in either of the contentions and both these
are liable to be rejected
Obviously the two contentions urged by counsel for the
appellant-company have a bearing on the proper construction
to be placed on sec.2(5) read with the Explanation of the
Orissa Taxation Act; It was not disputed before us that
under the charging provision contained in sec.3 of the Act
the Taxing event is the carriage of jute and other articles
by motor vehicle, cart, trolley, boat etc. within the State
of Orissa and the liability to be assessed in that behalf
under the provisions of the Act has been laid upon a
’dealer’ as defined in sec.2(5) and the Explanation thereto
of the Act. Section 2(5) and the Explanation thereto run as
under:
871
"2(5) "Dealer" means any person who stores at one
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9
time jute in excess of fifty maunds or bamboos in
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."
lt is true that during the relevant quarters covering
the period from 30-9-1960 to 31-3-1962 it was the jute
companies (the Principals) who carried on their jute
business at Kendupatna within the State of Orissa and that
the appellant-company had no business pf its own anywhere in
that State but it was looking after the business of the
Principals as their agent at Kendupatna and such business
included the operation of stocking or storing of jute in
their godowns at Kendupatna and carrying the same by motor
boats but there is nothing either in the main definition or
in the Explanation to suggest that the manager or agent of
the dealer (Principal) should have his own business within
the State of Orissa before he could be proceeded against or
assessed under the Act. In our view it would be sufficient
if the manager or agent of a non-resident dealer looks after
the operation of stocking or storing the jute of that non-
resident dealer and carrying the same by motor boats etc.
within the State of Orissa. Apart from this aspect of the
matter, the main thrust of Counsel’s contention has been
that the manager or agent should at least reside or have a
place of business within the State of orissa before he could
be proceeded against or assessed under the Act. On a plain
reading of the explanation that clearly is not a requirement
qua the manager or agent. 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 whether he resides inside or out- side the
State! In other words the place of residence or of business
of the manager or the agent is utterly irrelevant. The
artificial definition of a ’dealer’ under the Explanation is
merely an enabling provision which facilitates the
assessment against a non-resident dealer but the provision
does not require that the manager or the li agent should
have either a residence or a place of business within the
State of Orissa. Emphasis was laid by Counsel on the phrase
’who
872
stores such goods’ occurring in the Explanation as referring
to manager or agent and it was submitted that the said
phrase suggests that the manager or the agent should have
either residence or place of business within the State of
Orissa. It is not possible to accept this submission for the
reason that all that the Explanation requires is that the
manager or the agent should store such goods of the non-
resident ’dealer’ within the State of orissa but that does
not mean that for such purpose the manager or the agent must
either reside or have a place of business within the State
of Orissa; even if he carries out the operation of storing
the goods and carrying the same by motor boats within the
State of Orissa from outside the State it would suffice. On
a fair reading of the main definition together with the
Explanation it seems to us quite clear that the concept of
residence or non-residence is relevant qua the principal who
must be a non-residence dealer before his manager or agent
could be proceeded against or assessed under the act and it
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9
is not the requirement of the provision that the manager or
the agent of a non-resident ’dealer’ should have either
residence or the place of business within the State of
Orissa.
The next submission of Counsel for the appellant-
company has been that the two principals namely Nellimarla
and Chitavalsah who are ’dealers’ falling within the main
definition could not be said to be non-resident dealers
because in the case of a company, unlike an individual every
place where it carries on its business would be a place of
its residence and since admittedly each carried on business
at certain places at Kendupatna in the State of Orissa
during the relevant quarters it could not be said that they
had been residing outside p the State. Elaborating this
contention Counsel pointed out that the residence of a
company must be distinguished from its nationality and
domicile. According to Counsel the place of registered
office of a company would be relevant for determining its
nationality or domicile but it does not determine the
residence. Counsel pointed out that in law a company may
have a dual residence or multiple : residences depending
upon at how many places it carries on its businesses and
this aspect of the company’s residence assumes considerable
relevance in the context of tax laws and since here the two
jute companies (the Principals) had also places of business
within the State of Orissa, apart from having their
registered offices in Calcutta, they could be regarded as
having their residences within the State of orissa and as
such could not be regarded as non-resident ’dealer’.
873
It is true that in respect of an artificial person like
a company the test to determine its residence will have to
be considered in the context of the Law prescribing the
criteria in that behalf and would be different from the test
that determine its nationality or domicile. In Palmer’s
Company Law (23rd Edn) Vol.I these three concepts in
relation to a company have been dealt with in paragraphs
8.10, 8.11 at pages 101 to 103 thus:
8. 10 Nationality, domicile and residence of
company
The situation of the registered office determines
the nationality and domicile of the company but it does
not determine its residence. Where legal rules use
these criteria and it is obvious that the rules have to
be applied to legal persons, it becomes necessary to
apply these criteria by way of analogy from the case of
natural persons. It is obvious that a corporation can
no more have a domicile or residence than it can marry
or have children. On the other hand, effect must be
given to the legal prescript, which is clearly intended
to cover the case of the artificial person as well as
that of the natural person. Here the task of the courts
is to interpret the enactment in question in relation
to the artificial person..............
...................
Nationality
The nationality of a company is determined by the
law of the country in which it is incorporated and from
which it derives its personality.
In English law, nationality is rarely adopted as a
legal test.
Domicile
The place of registration is like-wise the
domicile of a company, and this domicile clings to it
throughout its existence. It is, however, possible that
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9
by operation of the law of the Company’s domicile,
another system of law may be substituted for the law of
the place of registration.
874
Unlike an individual, a company cannot have a
domicile of choice.
Residence
8.11 The residence of a company is not as easily
established as its nationality or its domicile. The
test of residence is mainly used if questions
pertaining to taxation, the character of the company as
an overseas trading corporation, service of process on
the company and attribution of enemy character to the
company arise. In these cases, the residence of the
company is not determined by the application of a
uniform test but a different meaning is given to those
words in each of them. Moreover, a company-like an
individual-may have several residences at the same
time, whereas it can have one domicile and one
nationality only.
Tax Law
8.12 In tax law a company is ordinarily resident
where the actual management of the company is carried
on, even though it ought to be managed elsewhere
according to its constitution. If this is done at
several places, the company has a dual residence (or
possibly even more residences), but in that case at
least some part of the superior and directing authority
of the company must be present in the country in which
it is sought to establish the residence of the company.
From what is stated above it will be clear that so far
as law of taxation is concerned-and in the instant case we
are concerned with tax law, namely, the Orissa Taxation Act-
ordinarily the residence of a company win be at the place
where the actual management of the company is carried on and
that if this is done at several places it may have a dual
residence but in that case at least some part of the
superior and directing authority of the company must be
present at the place where its residence is sought to be
established.
In Buckly on the Companies Act (14th Edn.), Vol.1 at
page 299 the following passage occurs i
875
For the purpose of the Income Tax Acts, the place
of registration of a company is not, any more than the
birth place of an individual, conclusive as to its
’residence’. A company registered here (in England),
with a registered office here, (in England) and
governed by a board which meets here, is no doubt
resident here. But also a company registered abroad,
whose head office and directors’ meeting are here, is
resident here. The test of residence is not
registration, but where the company does its real
business, where the central management and control
abides. It is the actual place of management of the
company and not the place where it ought to be managed
which fixes its residence." C
The underlined portion in the passage quoted from
Buckley is based on the decision of the House of Lords in
the leading case of Egyptian Delta Land and Investment Co.
v. Todd. In that case the company was incorporated in
England, had its registered office in England and fulfilled
its statutory obligations in that country but 1) had
transferred the whole of its business to Egypt which was
entirely controlled and managed from Cairo where the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9
director and the secretary permanently resided and the
question arose whether for the purposes of Income Tax Acts
the company could be regarded as a resident: in England’.
After exhaustive survey of the earlier case law on the point
the House of Lord took the view that the incorporation under
the Companies. Acts, with the attendant statutory
obligations did not in itself, as a matter of law,
constitute a British company a person residing in the United
Kingdom within the meaning of the Income Tax Acts; that it
was merely a factor to be considered in determining
residence, and was a matter for the Commissioners to decide.
lt also took the view that it was settled by authority that
the residence of a company, whether British or foreign, for
income tax purposes was, preponderantly and if not
exclusively, determined by the place where its real business
was carried on and since the whole of the company’s business
was controlled from Cairo the company was not resident in
England and it upheld the Commissioners’ decision of
discharging the assessments. In taking the aforesaid view
the House of Lords approved and followed the criteria that
had been laid down in an earlier decision in the case of De
Beers Consolidated Mines v. Howe to the effect "the test of
residence is
876
not registration but where the company does its real
business, where the central management and control abides."
Applying the aforesaid criteria to the facts of the
present case it was not disputed before us that both the
principals (the jute companies) had their registered offices
in Calcutta (West Bengal), that their principal businesses
were carried on in Calcutta (West Bengal) and that the
central management and control of the businesses was done
from Calcutta It is true that these two jute companies had
storage equipment and godowns at Kendupatna in the State of
Orissa but on their awn showing (vide certificates of
Registration? at Kendupatna they had ’additional places of
businesses’. It was not even the appellant company’s case
that the central management and the control of the two jute
companies’ businesses was in the State of orissa. The test
laid down in the House of Lords’ decision does not suggest
that at every place where some business of the company is
carried on it shall have its residence there. As pointed out
above, the central management and control of the two
companies’ businesses obtained in Calcutta (West Bengal) and
that being the position the two jute companies would be
nonresident dealers in the State of Orissa. The second
contention of the counsel for the appellant company,
therefore, fails.
In the result we are of the view that the High Court
was right in coming to the conclusion that the appellant-
company was a dealer within the meaning of s.2(5) read with
the Explanation thereto of the Orissa Taxation Act, 1959.
The appeal is, therefore, dismissed with costs .
H.S.K. Appeal dismissed.
877