Standard Vacuum Oil Company, Ernakulam Terminal and another vs Commr, Ernakulam Municipal Council Ernakulam and others

Subramania Iyer, J.—This is an application by Messrs. The Standard Vacuum Oil Company, Ernakulam Terminal, Ernakulam, under Art. 226 of the Constitution of India against 3 respondents (1) the Commissioner, Ernakulam Municipality, (2) the Municipal Council, Ernakulam and (3) the State of Travancore-Cochin praying the Court

(a) to call for the records in the case and quash by a writ of certiorari and/or any other appropriate writ, order or direction the assessment by respondent 1 for the half year ended 31-12-1122, the order of respondent 2 in appeal therefrom, and the order of respondent 3 in further appeal from the order of respondent 2, and to give further directions in the matter of refund of tax illegally levied and collected from the petitioner;

(b) to issue a writ or any other appropriate order or direction prohibiting the respondents from making similar assessments; and

(c) to pass an order for costs and such other reliefs as the case requires.

This case is like O.P. No. 47 of 1954 which we have disposed of today except for the difference that the petitioner-company here contends that they have a place of business within the area of the Trichur Municipality besides the one within the Ernakulam Municipality. In the view that we have taken in O.P. No. 47 of 1954 the order whereon will be appended to and will form part of this judgment, it is unnecessary to consider either the existence or the consequence of this feature of difference which is contested, as the order assessing the petitioner company to professional tax impugned in this petition has to be quashed for the reasons mentioned in our order in O.P. No. 47 of 1954. We accordingly quash the order allowing prayer (a) in the petition and send the papers back to the Municipality for making assessment to professional tax on the proper basis and according to law. Prayers (b) and (c) are not allowed as no case has been made out for their grant. In the circumstances we make no order for costs.

Joseph Vithayathil, J.

I agree.

Subramania Iyer, J.

This is an application by Messrs. The Tata Oil Mills Co. Ltd., Tatapuram, Ernakulam, under Art. 226 of the Constitution of India against 3 respondents (1) the Commissioner, Ernakulam Municipality, (2) the Municipal Council, Ernakulam and (3) The State of Travancore-Cochin praying the Court

(a) to call for the records of the case and quash by a writ of certiorari and/or any other appropriate writ, order or direction the profession tax assessments by respondent 1 on the petitioner for the years 1122, 1123, 1124 and the 1st half of 1125, the order of respondent 2 in appeals therefrom and the Order of respondent 3, D. Dis. No. 19005/52/EHLSG dated 28-1-1954 in further appeals from the order of respondent 2, and to give further directions in the matter of refund of tax illegally levied and collected from the petitioner;

(b) to issue a writ of prohibition or any other appropriate order or direction prohibiting the respondents from making similar assessments; and

(c) to pass an order for costs and such other and further reliefs as the circumstances of the case require.

The petitioner company (hereinafter called the company) runs an oil mill for crushing copra and other oil seeds and works a factory for the manufacture of soaps and other products in Tatapuram within the limits of the Ernakulam Municipality. The products are sold locally as also outside in Bombay and elsewhere. The Cochin Municipal Act, 18 of 1113, and the rules framed thereunder apply to the company as they have their office and they do business within the limits of the Ernakulam Municipality. Section 115 of the Act empowers the Government to make rules ''inter alia'' regarding (b) the assessment of tax on companies and tax on profession and other sources of income.

The taxation and finance rules were framed by Government on 3rd Makaram 1114 (Rules and Notifications of Cochin, 1114, page 149). The procedure for the levy of professional tax is contained in Rr. 16, 17, 18 and 19 which must be read:

16(1) The Council shall determine the scale of taxes on professions and other sources of income leviable under Sch. II of the Act and such scale shall be subject to the maximum and minimum specified against each class in the said schedule and it shall proceed proportionately either to the maximum or to the minimum.

(2) The monthly income referred to in Sch. II of the Act shall be calculated on the average income for the half-year tinder assessment.

A company or person shall be deemed to have transacted business and a person shall be deemed to have exercised a profession, art, or calling or held an appointment within a municipality, if such company or person has any office or place of employment within such Municipality.

18(1) Where a company or person transacts business in any half-year exclusively in the area of a single municipality, the income of such company or person from the transaction, of such business shall, for the purpose of levying tax on professions and other sources of income under this Act during the half-year be deemed to be

(a) where income tax is assessed on such company or person under the Cochin income tax Act, 1108, for the year comprising the half-year, one half of the amount at which the profits and gains of such business are computed under S. 10, Cochin income tax Act for the purpose of assessing the income tax exclusive of the income from houses and lands inside the municipal limits, if any;

(b) where the amount of the said profits and gains is not ascertainable or where such company or person is not assessed to income tax, such percentage as the Government may prescribe, of the turn-over of the business transacted in the area of the municipality during the half-year or where this is also unascertainable, during the corresponding half-year of the previous year.

(2) Where a company or person transacts business partly in the area of a municipality and partly outside such area, the income of such company or person from the transaction of business in the area of the municipality shall, for the purpose of levying tax on professions and other sources of income under this Act, be deemed to be the percentage prescribed under cl. (b) of sub-r. (1) of the turnover of the business transacted in such area during the half-year or the corresponding half-year of the previous year as the case may be.

(3) For the purposes of cl. (b) of sub-r. (1) and sub-r. (2) the turnover of business in any municipality means the aggregate money value of the goods produced, manufactured, imported, exported, purchased or sold or of any other business transacted in such municipality.

Explanation: In determining the turnover of business under this sub-rule

(a) where the delivery of any goods on account of any purchase or import made by any company or person and the delivery on account of the sale or export thereof by the same company or person are both effected in the Cochin State, only the latter transaction shall be taken into account;

(b) where the delivery of any goods on account of any purchase or import made by any company or person is effected in any place outside the Cochin State and the delivery on account of the sale or export thereof by the same company or person is effected in any place in the Cochin State, the latter transaction shall be taken into account; and

(c) where the delivery of any goods on account of any purchase or import made by any company or person is effected in any place outside the Cochin State and the delivery on account of the sale or export thereof by the same company or person is effected in any place in the Cochin State, the latter transaction shall be taken in account.

19(1) If, in the opinion of the executive authority, tax on professions and other sources of income is due from any company or person for any half-year, he shall serve a notice on such company or person either in that half-year or in the succeeding half-year requiring the company or person to furnish within such period not being less than thirty days as may be specified in the notice, a return in the prescribed form showing the income on the basis of which, according to such company or person, it or he is liable to be assessed to tax on professions and other Sources of income for the half-year in question. Thereupon it shall be open to such company or person to submit a return showing the income derived by it or him during the half-year for which the tax is claimed or for the corresponding half-year of the previous year and produce any evidence on which the company or person may rely in support of the return made.

(2) If a return is made as required under sub-r. (1) and the executive authority is satisfied that it is correct and complete, he shall levy the tax on professions and other sources of income from such company or person on the basis of such return.

Explanation: In cases not falling under cl. (b) of sub-r. (1) or under sub-r. (2) of R. 18, if the company or person produces the notice of demand of income tax served on it or him under S. 31, Cochin income tax Act, 1108, for the year comprising the half year in question, the executive authority shall be bound to take one-half of the income mentioned in such notice of demand. as the income derived from the sources on which tax on professions and other sources of income is leviable under this Act, as the income on the said sources for the purposes of levying tax on professions and other sources of income.

(3) If no return is made as required under sub-r. (1) or if the executive authority is satisfied that any return so made is incorrect or incomplete the executive authority shall assign to the company or person the class in the scale appropriate to the half-yearly income of such company or person as estimated by him.

(4) The executive authority may, when classifying any company or person under sub-r. (3) do so on general considerations with reference to the nature and reputed value of the business transacted, the size and rental of residential and business premises, the quantity and number of articles dealt with, the number of persons employed and the income tax paid to Government.

(5) The executive authority shall not be entitled to call for the accounts of any company or person.

The first step is the issue of a notice under R. 19(1) requiring the company or person to furnish within such period not being less than 30 days as may be specified in the notice a return in the prescribed form showing the income on the basis of which according to such company or person it or he is liable to be assessed to tax for profession and other sources of income for the half year in question. The form prescribed is printed at page 331 etc., of the aforesaid rules, 1114, which is as follows:

Mun. Form 14-D.

From

....................................

Chairman --------------------of the Municipal Council, Commissioner

.........

To

............................

............................

Sir,

I have the honour to request, under R. 19(1), of the Rules issued by Government under S. 115, Cochin Municipal Act, 18 of 1113, that you will be so good as to furnish me within....... days with a return of your income in the form below to enable me to assess the tax on profession and other sources of income leviable from you for the half-year ending............111...

I have the honour to be, Sir,

Your most obedient servant, Chairman -------------- Commissioner.

RETURN OF INCOME FOR ASSESSMENT TO THE TAX ON PROFESSION AND OTHER SOURCES OF INCOME DURING THE HALF-YEAR ENDING..........

Name of the company or person.

Description of business, profession, art or calling or appointment.

Income derived by the assessee during the half-year or the corresponding half-year of the previous year from the exercise of any profession, art or calling or from holding any appointment, public or private or from money-lending business'':

(a) within the municipality for not less than, sixty days in the aggregate during the half-year.....

(b) without the municipality if the assessee has resided within the municipality for not less than sixty days in the aggregate during the half year.

''Where business is transacted exclusively'' within the municipality-

(a) where the income tax has been assessed on the company or person for the year comprising the half-year - the amount at which the profits and gains of such company or person were computed under the Cochin income tax Act, 1108, for the purpose of assessing such income tax;

(b) where the said profits and gains are not ascertainable or where income tax has not been assessed for the year comprising the half-year-

(i) the turnover of the business transacted within the area of the municipality during the half-year or

(ii) where such turnover is not ascertainable, the turnover of the business during the corresponding half-year of the previous year.

''Where business is transacted by the company or person partly in the area of the municipality and partly outside such area''-

(a) the turnover of business transacted in the area of the municipality during the half-year, or

(b) where such turnover is not ascertainable, the turnover of business in the area of the municipality during the corresponding half-year of the previous year.

Income derived by the assessee-

(a) from the business transacted outside the municipality and

(b) from any pension or investments during the half-year, if the assessee has resided within the Municipality for not less than sixty days in the aggregate during the half-year.

The aggregate income on the basis of which according to the company or person it or he is liable to be assessed..........

Up till and inclusive of the year 1121 the company was assessed to professional tax on the basis of the turnover of the business transacted within the area of the municipality. For both the half-years of the year 1122, 1123, 1124 and the first half-year of 1125 the assessment made to professional tax was not on that basis but on the basis of the income as estimated by respondent 1, the Commissioner of the municipality. The Act provides for an appeal against the assessment to respondent 2, the Municipal Council, and an application for a revision of their decision to respondent 3, State. The company felt aggrieved by the assessment to professional tax on that basis as accord" fag to the company the proper basis was the one followed by the Municipality previously, i.e., the turnover basis. Their appeal to the council failed and a revision before the State shared the same fate. Hence this petition for quashing the said orders of assessment as ''ultra vires'' the powers of the respondents and illegal.

To the notice issued to the company under R. 19(1) the return submitted related to their turnover during the concerned period. The Commissioner was of the view that the turnover was not the proper basis for assessment to professional tax, the proper basis for which according to him was income and there being no return made of income he made an estimate of it under the third sub-rule of R. 19. No demand was made of the petitioner to submit a fresh return regarding their income. This way of stating the case may lend itself to the criticism that whether it be percentage prescribed by the Government on the turnover in cl. (b) or R. 18(1) or whether it be on the income actually made the basis of assessment to professional tax is all the same the income and the two methods provided are only for ascertaining its quantum for purposes of assessment to professional tax by assigning to the company or person the clause in the scale appropriate to the half-yearly income.

The two modes are differently stated notwithstanding the possibility of the above criticism with a. view to keep the two points of view or modes of approach distinct as that matter is all important m this case and indeed the only one that arises for determination and it is this: what is the proper basis of assessment of the company to professional tax, whether the income made or the percentage of the turnover prescribed by the Government, and this question depends upon what is the rule that applies to this case. The company contends that the rule that applies is that the second sub-rule of the 18th rule whereas the municipality contends that it is the first sub-rule of that rule. The determination of the appropriate one out of the two provisions again depends upon the true interpretation of the words "where a company or person transacts business in any half-year exclusively in the area of a single municipality" contained, in the first sub-rule and of the words "where a company or person transacts business partly in the area of a municipality and partly outside such area" in the second sub-rule which are the opening words in each of the two sub-rules.

According to the assessee the said words of the first sub-rule connote a company or person whose business is confined to the confines of a municipality and has no business anywhere else, whether within or without the State. On the other hand, the case of the Municipality is that these words only mean that as between the various municipalities in the State the business is confined to the area of one municipality to the exclusion of the areas of other municipalities. The word single is stressed in aid of this interpretation. The opening words of the second sub-rule refer to cases outside the scope of the first sub-rule and contemplate instances where the business of the company or person is not confined to the area of a municipality but is outside such area as well. Here again, the parties are in controversy, whether the business outside the municipality contemplated by the second sub-rule is confined to business in any place within the State or without the State, whether such other business be within the area of another municipality or not.

The municipality''s case is that the operation of the rule is confined to the State and does not extend to any place beyond the State. Sub-clause (2) of sub-r. (1) of R. 18 gives a clue to the solution of this controversy as it refers to the assessment to income tax under S. 10, Cochin income tax Act as the basis for levying tax on professions in a case to which sub-r. (1) applies. In the case of a resident assessee tax is leviable on his income not merely in respect of the business transacted by him within a municipality or within anywhere in the State but also in respect of business transacted outside in so far as the income proportionate to the quantum of the contribution to the business made within the State. That is to say, business transacted outside the State by a resident assessee is not altogether and in all cases immune from assessment to income tax though the Cochin income tax Act has no extra-territorial operation. The contention of the Municipality as regards the construction of the opening words of the first and second sub-rules of R. 18 is based mainly upon the lack of extraterritorial operation of the Cochin Municipal Act beyond the limits of the territory of the Cochin State.

The clue afforded by cl. (a) as above mentioned indicates that the absence of extra-territorial operation would not help the construction contended for by the municipality. The word ''single'' in sub-r. (1) has no special significance and would not convey more than what the other words mean without it. The form of return in No. 4 with reference to the first sub-rule of R. 18 says "where business is transacted exclusively within the municipality" indicating clearly that a case where the assessee has no business at all anywhere outside the State is the one contemplated. It follows that if the assessee does business within a municipality as also outside a municipality, whether within oil without the limits of the State, the first sub-rule of R. 18 will not apply.

This, in our judgment, is the true construction of the first sub-rule of R. 18. In this view of the interpretation of the opening words of the second sub-rule of R. 18 does not offer any difficulty. That sub-rule will not apply to cases where the company or person transacts business partly inside the municipality and partly outside such area, whether the area outside be within or without the limits of the State. The assessee company does business within the area of the Ernakulam Municipality as also in other places outside the State, though they have no business in any other place in the State outside the area of the Ernakulam Municipality. The company''s case, therefore, comes within the application of sub-r. (2) of R. 18 and the proper basis of assessment to professional tax is the percentage of the turnover as prescribed by the Government in cl. (b) of sub-r. (1).

The Commissioner, the Council as also the State alike were of the opinion that the first sub-rule of R. 18 applies and the assessment to professional tax made thereunder by the Commissioner was confirmed in appeal and revision. The only basis of the assessment of the company to professional tax being the percentage of their turnover as prescribed by the Government the orders of assessment to professional tax based on the income estimated by the Commissioner cannot be supported. This being an error apparent on the face of the record and the orders made being speaking orders admit of judicial review and are liable to be quashed in ''certiorari'' as held by the Supreme Court, - Hari Vishnu Kamath Vs. Syed Ahmad Ishaque and Others, .

The return submitted by the company did not show their income for the relevant period but only mentioned their turnover. Rule 19, sub-r. (1) appears in the first instance to give an option to the assessee to state the income on the basis of which according to such company or person it or he is liable to be assessed to tax on professions. If the return made is improper in the view of the Commissioner in the sense that the return ought to have indicated the income made and not the turnover the Commissioner ought to have returned it to the assesses for fresh submission showing the income made. The third sub-rule of R. 19 would apply only if no return is made or if the return made is incorrect or incomplete. The sub-rule assumes that the return made is on the proper basis; that is to say, if the proper basis be income made, that income. If, on the other hand, the proper basis be turnover, the percentage of the turnover. If the basis of assessment to professional tax on which the return is made is itself wrong in the view of the Commissioner he would not be competent to assess on the estimate of his income under sub-r. (3) without calling for a fresh return on the proper basis. In this case the Commissioner made an estimate of the income and assessed the company accordingly not because the return was incorrect or incomplete but because the basis of the assessment to professional tax on which return was made was itself improper.

The orders of assessment made are, therefore, quashed and papers sent back to the Municipality for fresh assessment of the company to professional tax on the proper basis.

In view of the fact that the company appears to have been waivering between sub-cl. (b) of sub-r. (1) of R. 18 and sub-r. (2) of that rule as the provision that applies to their case in the course of the proceedings before the three authorities, while allowing the petition and quashing the impugned orders we do not make any order for costs. Prayers (b) and (c) are not allowed as no case is made out for their grant.

Vithayathil, J.

I agree.