ANGLO-PERSIAN OIL CO., LTD. v. COMMISSIONER OF INCOME TAX

076-NLR-NLR-V-38-ANGLO-PERSIAN-OIL-CO.,-LTD.-v.-COMMISSIONER-OF-INCOME-TAX.pdf


348
Anglo-Persian Oil Co. v. Commissioner of Income Tax.
1935
Present: Akbar S.P.J. and Koch J.
ANGLO-PERSIAN OIL CO., LTD. v. COMMISSIONEROF INCOME TAX.
162—(Inty.) Income Tax Special
Income tax—Contract for sale of fuel oil made in London by company registeredin U. K.—Delivery to shops at Colombo by company’s agent—Paymentin London—Profits not arising in or derived from Ceylon—Agent notinstrumental in selling or disposing of property in Ceylon—OrdinanceNo. 2 of 1932, ss. 5 and 34.
A contract was entered into in London by the appellant company,which was registered in the United Kingdom, for the sale of fuel oil(which was not a product of Ceylon) to shipowners, whose ships callat Colombo. Delivery of the oil was to be made at Colombo by theagent of the company who stored his own oil as well as the oil of thecompany, payment being made in London on receipt of telegraphicadvice of the quantity delivered each time. The shipowners werebound to purchase all their requirements from the company, the latterundertaking to have ready at Colombo sufficient oil to satisfy all theirrequirements.
Anglo-Persian Oil Co. v. Commissioner of Income Tax.
349
Held, that the profits of the company from the contract were notliable to income tax under either section 5 or section 34 of the IncomeTax Ordinance.
The profits of the company arise from contracts made in London andit cannot be said from the mere act of delivery of the oil in Ceylon thatthe profits " arise in .or are derived from Ceylon ” within the meaning ofsection 5 of the Ordinance.
Section 34 is intended to include contracts which have been enteredinto as a result of efforts of agents in Ceylon of a foreign principal evenwhen such contracts have been finally concluded outside Ceylon.
T
HIS was a case stated for the opinion of the Supreme Court undersection 74 of the Income Tax Ordinance. The facts are stated by
Akbar J. as follows : —
The appellant is the Anglo-Persian Oil Company, Ltd., registered inthe United Kingdom, and its agent in Ceylon is the Anglo-Persian OilCompany (Ceylon), Ltd., also registered in the United Kingdom. Theappellant company enter into contracts in London with shipownerswhose ships call at various ports including Colombo. In Colombothe appellant company, although it has no place of business, stores itsfuel oil with its agent, the Ceylon company, which has its place of businessin Colombo where it trades in fuel oil as part of its business. A specimenform of the contract is attached and under it the appellant companyundertakes to supply fuel oil for the requirements of the shipping com-pany’s vessels at certain named ports including Colombo and at a statedprice per ton. The shipping company on its part binds itself to buyfrom the appellant company all the oil requirements of its vessels at thenamed ports and the total estimated tons of oil for all the ports are alsostated. The minimum quantity which the shipping company undertakesto buy and the maximum quantity which it may require the appellantto deliver during the period (which is also fixed) are also stated. Clause3 provides that the prices include delivery f.o.b. where there are directpipe lines, but where delivery is by barge (as in Colombo) the shippingcompany pays an extra sum also paid per ton. The appellant company’sweights and measurements are to be accepted as conclusive but theshipping company may also be represented at the measuring to verifythe correctness of the measurements. By clause 5 payment is to be madein London by cash nett on receipt of the appellant’s agent’s telegraphicadvice of the quantity delivered. By clause 7 the shipping companyhad to give the appellant’s agents at the named ports forty-eight hoursnotice of each delivery required. Clause 9 states that each delivery shallconstitute a separate contract. The appellant has the right to suspendor cancel the contract in the event of the shipping company failing tomake the payments provided in the contract and in certain othercontingencies not material to this case.
According to the fact stated the agents of the appellant, i.e., the Ceyloncompany store the appellant’s oil and its own oil in tanks built on premisesleased out from the Crown by the Ceylon company for the latter’s ownbusiness. When a ship belonging to a company which has entered intoa contract with the appellant arrives in Colombo a representative of theCeylon company visits the ship and ascertains the requirements of oiland the required quantity is brought in lighters belonging to the Ceylon
350Anglo-Persian Oil Co. v. Commissioner of Income Tax.
company and delivered to the ship. A document of delivery and accept-ance is signed by representatives of the ship and the Ceylon companyand a copy of this document is sent by the Ceylon company to theappellant in London.
H. V. Perera (with him F. C. W. Vangeyzel and G. E. Chitty), for assessee,appellant.—The question in this case is whether the Ceylon company“ sells or disposes of or is instrumental in selling or disposing ” of oil storedin bulk in Ceylon so as to give rise to taxable profits. The contract ofsale is made in London between the London company and the shipownerand the latter has an option of taking oil or not, according to his require-ments in Colombo. The oil is the property of the London company, andif the shipowner wants oil in Colombo the Ceylon company merelydelivers the oil, acting under a contract of service between it and theLondon company.
“ Disposes ” must be construed in this context as equivalent to “ sells ”,and it is clear on the facts of the case stated that the Ceylon company iscertainly not a seller. Is it, then, instrumental in selling ? The functionit performs is only ministerial and if that was within the section then thelabourer who pumps the oil or the boatman who takes the lighter out tothe ship are equally ‘ instrumental ’. Mere delivery of goods which arecovered by a contract made abroad cannot come within the ambit of thesection: compare the function of the Post Office when it delivers goodssent V.P.P. by foreign sellers. It even collects the purchase price, whereasin the present case the Ceylon company has nothing to do with paymentsfor the oil it delivers.
Counsel cited Erichson v. Last1, Grookston v. Furtado', and Lovell &Christmas v. Commissioner of Taxes1.
M.W. H. de_ Silva, Acting S.-G (with him H. H. Basnayake, C.C.), forrespondent.—The matter for decision is whether the assessee is liable tobe assessed for income tax, not whether he is liable under a particularsection only.
There is a difference between our law and the English law on the pointarising for decision. The English law speaks of “ trade exercised ” whileour Ordinance speaks of “ business transacted ”.(2 T. C. 607). Of the
two expressions business and trade the former has a wider meaning. Ina taxing statute words should be given their ordinary meaning, not atechnical one (12 T. C. 567).
The place of agreement is not always the place where the business istransacted. The test is where is the most important step in the businesstaken. There the business is transacted and the profit arises.
The contract before the Court is an agreement to sell and an agreementto purchase—one party undertakes to sell and the other undertakes tobuy. It does not specify that any particular quantity should be sold atany port to which the agreement extends. In considering the contractsection 1 of the Sale of Goods Ordinance should be looked at. Thequantity of oil to be delivered is discussed and agreed to at Colombo.Clause 9 of the contract provides that each delivery shall constitute aseparate sale. A contract of sale includes sale and agreement of sale.They are two separate matters—the agreement and the sale.
> 8 Q. B. D. 414.» (1911) S. C. 211.• (1908) A. C. 46.
ATCRAR SJPJ.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 351
The profit bearing transaction is completed in Ceylon. Delivery is .themost important step in the whole transaction. Without delivery no-profit can arise. Though the agreement is made outside Ceylon the saletakes place here.
The Solicitor-General next addressed the Court on the expression“ dispose of ” and “ instrumental in selling or disposing of ” in section 34of the Income Tax Ordinance and thereafter dealt with section 5 (2) ofthe Ordinance.
The following cases were cited—Smith v. Greenwood Turner v. Rick-man Belford v. Mace and Grainger & Son v. Gough *.
Cur adv. vult.
July 30, 1935. Akbar S.P.J.—[After stating the facts :—]
The assessment was in respect of profits which it is claimed the appellantcompany must have made from the supply of oil to the shipping com-pany’s ships calling at Colombo. The question to be decided is whetheron these facts the appellant company is liable to be taxed under theOrdinance. The case for taxation was solely put before the Board on theground that the liability to be taxed arose under section 34 of the Ordi-nance, and it was urged for the appellant that the sole question to bedecided by us was whether section 34 applied. The Deputy Solicitor-General, however, contended that it was open to us to decide this caseupon an interpretation not only of section 34 but also of the generalsection 5 of the Ordinance. As the case sent up to us for our opinion is(as it is expressed in paragraph 12) “ whether the appellant company isliable to pay income tax upon the facts' set forth above ” we were ofopinion that it was necessary for us to interpret both sections. Therewas another reason for this course. Section 34 is supplementary tosection 5 and, as I shall indicate later, was presumably drafted to catchup cases which were likely to escape the net cast by section 5 according tocertain English decisions. It would be necessary therefore to considerboth sections and if, in the result, we came to the conclusion that section34 did not apply but that section 5 did, our decision will lead to: nopractical benefit to the appellant company. Apart from this, as I havesaid, paragraph 12 of the case stated is wide enough to allow us to considerboth sections. (See per Atkin L. J. in Armayo & Co. v. Ogstcn “.)
On the case stated and the contract, it is quite clear that the contractwas signed in he United Kingdom for delivery of oil in Ceylon (which is .not a product of Ceylon) by the appellant’s agents in Ceylon and thatthe price was paid in the United Kingdom. The oil belonging to theappellant company is mixed up with the oil of the local company andstored in the Ceylon company’s stores. The Ceylon company would bepaid for this storage and also for their services to the appellant companyby the appellant which payment would be liable to taxation undersection 5. The Ceylon company appears to be nothing more than anagent for delivery of oil; the quantity, the price, the conditions andmethod of delivery having been already fixed by a contract entered into
in England.
>«r.C. 193.
* 4T.C. 25.
5 (1925) 1 K. B. 109.
3 13 T. G. 539.3 3 T. C. 471.
352 AKBAR S.P.J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
By section 5, income tax is payable in respect of profits and income, inthe case of a person not resident in Ceylon (as in this case) if they arisein or are derived from Ceylon. I do not think the profits of the appellantcompany arise in Ceylon or are derived from Ceylon. In my opinionthe profits of the appellant company arise from the contracts made inEngland and not from the mere act of delivery in Ceylon made in pursu-ance of the contract. If the oil delivered is the product of Ceylon onemay contend that the profits arose in or are derived from Ceylon, just asthe income from a tea estate in Ceylon may be said to arise in Ceylon eventhough the non-resident owner sold the tea on contracts made in thecountry of his domicile. But the oil is not the product of Ceylon, and itis oil that has been shipped to Ceylon. Nor do I think that the profitshave been derived from Ceylon ; the word “ derive ” implies that thesource of the profits or income must be Ceylon. If the local Governmentcan reach the income derived by an agent in England who is paid for hisservices in England on behalf of a person resident in Ceylon by the latter,such income may possibly be said to be derived from Ceylon. In myopinion these two words “ arise ” and “ derive ” were meant to includethe case of the Ceylon company when it makes any profits or gets anyincome for anything done in Ceylon and the case of a non-resident ownerderiving his income from an estate in Ceylon.
On the facts stated in this case, although the generality of the words hasnot been restricted, I think the words mean nothing more than its definitionin sub-section (2) of section 5. Otherwise, a foreign merchant sendinggoods sold on a contract made outside the Island and when the price isalso paid outside Ceylon to a purchaser in Ceylon would be liable to betaxed when the goods are sent to an agent in Ceylon for delivery or evenwhen they are sent by post. It is the same distinction between tradingwith a country and trading within a country pointed out by Lord Herschellin Grainger & Son v. Gough
In section 3 (2) the words used are “ business transacted in Ceylonwhether directly or through an agent ”, whereas the words in Schedule Dof the English Act are “ trade exercised within the United KingdomIn my opinion the words mean the same thing. In Lovell & Christmas}Ltd. v. Commissioner of Taxes', the Privy Council interpreted the words“ income derived from business ” in the New Zealand Act as more or lessequivalent to the words in the English Act. Sir Arthur Wilson said asfollows in hjs judgment:—“The language of the English Income TaxActs and that of the New Zealand Act are not identical, but there issufficient similarity in substance to make the English decisions authori-tative as to the principles to be applied to the interpretation of theColonial Ac t ”. The Privy Council applied the principles of the Englishdecisions even though the sales were of produce shipped by growers inNew Zealand in and under arrangements and contracts made in NewZealand for sale by the appellant company in England. “The ruleseems to be that where such contracts, forming as they do the essence ofthe business or trade, are habitually made, there a trade or business iscarried on within the meaning of the Income Tax Acts, sn as to renderthe profits liable to income tax ”. There is a series of English decisions *
* (1896) A. C. 325.
{19"'. .4. C. 46
AKBAR SJ> J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 353
beginning with Erichsen v. Last1, down to quite recent times in whichthe deciding factor was held to be the place where the contracts weremade. In some of those decisions, the three essential points, the placewhere the contract was made, the place where delivery was to be made,and the place where the price was to be paid—were considered but thecrucial test was laid down as the place where the contract was made.In Maclaine Co. v. Eccott ”, the Lord Chancellor said as follows : —“ Thequestion whether a trade is exercised in the United Kingdom is a questionof fact, and it is undesirable to attempt to lay down any exhaustive testof what constitutes such an exercise of trade; but I think it must nowbe taken as established that in the case of a merchant’s business, theprimary object of which is to sell goods at a profit, the trade is (speakinggenerally) exercised or carried on (I do not myself see much differencebetween the two expressions) at the place where the contracts are made.No doubt reference has sometimes been made to the place where paymentis made for the goods sold or to the place where the goods are delivered,and it may be that in certain circumstances these are material considera-tions : but the most important, and indeed the crucial, question is, whereare the contracts of sale made ? Statements to this effect by Lords JusticesBrett and Cotton in Erichson v. Last (supra) were quoted with approval inthis House in the case of Grainger v. Gough (supra); and the same principlewas the basis of the decisions in Werle v. Colquhoun3; Lovell & Christmasv. Commissioner of Taxes *; Greenwood v. Smith “; and Wilcock v. Pinto *.The decision in Crookston v. Furtado7 may probably be supported forthe second reason given by the Court, namely, that the profits there in• question had not been received by the agents; but on the questionfirst discussed, namely, as to the place where the trade was carried on,I think that the reasoning of Lord Dundas is to be preferred to that ofthe other members of the Court
This case was followed by the House of Lords in Muller & Co. (London),Ltd.- v. Commissioner of Inland Revenueand Viscount Dunedin referredto the remarks of Lord Shaw in the former case.
In the case before us the contract is made in England and the price isto be paid in England, and only the delivery is to be made in Ceylon.The Deputy Solicitor-General argued that the delivery was to be regardedas decisive in this case, for he said it regulated the price and he quotedthe cases of Turner v. Rickman”, and Crookston Bros. v. Furtado10. Inthe former case it is true that Wills J., while holding that the contractswere concluded and the deliveries made in the United Kingdom, was ofopinion that even if the contracts had been made in New York, thedelivery of the goods here would by itself have constituted an exerciseof trade in this country. But Wills J.’s remarks were obiter and althoughit. is referred to in the dissenting judgment of Lord Dundas in CrookstonBros. v. Furtado (ubi supra) he preferred to follow the other decisions ofthe English Courts. In Maclaine v. Eccott (supra) Viscount Cave preferredthe reasoning of Lord Dundas.
1 8 Q. B. D. 411.
42 Times L. R. 416.
3 4 Times L. R. 396 . 20 Q. B. D. 153.
24 Times L. R. 32 ; (1908) A. C. 46.
3 38 Times L. R. 421 ; (1922) 1 A. C. 411.12J. N. B 32999 (1/54)
• (1925) 1 K. B. 30.
1 (1911)Scot.C .211 ;5TaxCases 602.8 (1928) A. C. 48.
“ 4 Tax Cases 25.
10 5 Tax Cases 602.
354 AKBAR S.PJ.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
Lord Shaw’s remarks are as follows : —“ But I may be allowed beforedoing so to add but a few words to those of the Lord Chancellor in regardto the case of Crookston v. Furtado (supra). It humbly appears to me thatthe judgment of the majority of the learned Lords of the Second Divisionwas erroneous. I think the weight of authority upon the subject inEngland was much too lightly treated. As illustrated of this I may citethe following passage from Lord Salvesen’s judgment:—“I am fullyaware ”, says he (it was a clear case of a contract completed in England) ,
“ that my opinion runs counter to some dicta of the English Judges,and especially to the dictum of Lord Justice Brett in the case of Erichsen-(8 Q. B. D. 414), which was quoted without disapproval in the subse-quent case of Grainger (12 Times L. R. 364; (1896) A.C. 325), and fromwhich it might be inferred that the fact that a foreign company makes itscontracts in England for the sale of its goods there, even when it does sothrough an agent, is of itself sufficient to constitute an exercise of tradeby a foreign company so as to render it amenable to assessment underour fiscal law ”.
“ My Lords, in the case of Grainger (supra), Lord Herschell said : —
“ In all previous cases contracts have been habitually made in thiscountry. Indeed, this seems to have been regarded as the principal 'testwhether trade was being carried on in this country. Thus in Erichsen v.Last (supra) the present Master of the Rolls said :—“ The only thing wehave to decide is whether, upon the facts of this case, this company carryoh a profit-earning trade in this country. I should say that wheneverprofitable contracts are habitually made in England, by or for foreigners,with persons in England, because they are in England to do somethingfor or supply something to those persons such foreigners are exercising aprofitable trade in England even though everything to be done by themin order to fulfill the contracts is done abroad ”.
“ It appears to me that it gives insufficient weight to the importantjudgment in Grainger’s case (supra) to treat it as having quoted theobservations of Lord Esher in Erichsen v. Last (supra) ‘ without dis-approval ’, and I agree with Lord Dundas that Lord Herschell agreedwith and approved of Lord Esher’s expressions.
“ I go so far as respectfully to adopt as my own the judgment of LordDundas, who dissented from the majority of the Second Division Judges,and in particular to accept his statement to this effect“ I now come tothe last and, as I think, the most important question of fact, namely,whether or not the contracts of sale by the company were made withinthe United Kingdom. In my opinion, they were so made. It is admittedthat ‘ the appellants have authority to sell the company’s phosphates ator over minimum prices fixed by the company. The appellants make thesales without reference to the company. It is left to the appellant’sdiscretion to whom to sell ’. Crookston Brothers, therefore, are not merecanvassers for orders, to be approved or rejected by their principals, buthave full authority to make contracts of sale, so long as the price theycontract for is not below the prescribed minimum ”.
“ Lord Dundas gives a careful citation of the authorities and considersthat if he is right in holding that the sales were made in this country it
AKBAR SJ* J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 355
follows from the decisions and particularly from the opinion in Graingerv. Gough (supra) that the company exercised a trade here.
“ I humbly think that both Mr. Justice Rowlatt and the Court of Appealwere right in disregarding Crookston v. Furtado (supra) and in holding thatit did not correctly interpret the Income Tax Acts in the particularmentioned
So that according to the English decisions the business of the appellantcompany, must be held so far as liquid fuel was concerned to be transactednot in Ceylon but in England. The Deputy Solicitor-General, however,argued (and this part of his argument also affected the position that hetook up with regard to section 34 to which I shall refer later) that thecontract which was signed in the United Kingdom was nothing more thanan agreement to sell and that the sale proper took place in Ceylon as eachdelivery was made. (See section 1 of the Sale of Goods Ordinance, No. 11of 1896.)1 do not think that this is so on the statement of facts set out
for the opinion of this Court. Paragraph 5 states as follows :—“TheCeylon company store the oil of the appellant company and other oil inwhich the Ceylon company deals, in tanks belonging to them … ,.
Considerable stocks of oil are stored in these tanks to meet the obligationsof the appellant company in respect of contracts entered into in Londonby the appellant company with various shipowners whose ships arelikely to call at Colombo ”.
Paragraph 6 states that under the contracts the shipping companyundertakes to purchase their whole requirements of fuel oil from theappellant company at the port of Colombo …. and that, there-fore, the appellant company has to have ready and available variousquantities of oil at the various ports to meet the various contracts. Thecontract provides for a fixed price per ton of oil, and the minimumquantity which the shipping company undertakes to buy during theperiod of the contract and the maximum quantity which the shippingcompany may require the appellant company to supply during thecontract period are both fixed by the contract.
Paragraph 11, sub-paragraph (3), also makes it clear that the appellantcompany store their oil in the Ceylon company’s tanks in Colombo. Atthe time the contract was entered into there was an agreement to sell aswell as an agreement to buy all the oil required by the shipping company’sships calling at Colombo ; the oil was stored by appellant in Colomboand the minimum and maximum quantities were fixed in the contract.The oil was to be delivered in Colombo according to the requirements ofeach ship as it came to Colombo. These contracts are entered into bybusiness men, who will have no difficulty in calculating the exact oilrequirements at each port during each month.
It seems to me that in these circumstances the intention was that theproperty in the oil stored in Colombo passed to the shipping companyat the time the contract was signed, the exact quantity being limited bythe requirements of all the ships of the shipping company calling atColombo and only the delivery was to be made in instalments in Colomboto suit the convenience of the buyer.
Section 18 of Ordinance No. 11 of 1896 begins by stating that “ unlessa different intention appears ”, the rules enumerated in it are to be
356 AKBAR S.P.J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
applied. The intention in this contract, it appears to me, was to transferthe property in the oil at the time the contract was entered into in Englandand that only the delivery was to be made later at intervals according to .the requirements of the buyer from time to time. It is to be noted inthis connection that it is the buyer who has to notify in the first instancehis requirements for each ship as it arrives in Colombo. (See Turley v.bates'). The Ceylon company’s duty was merely to measure out thequantity required and give delivery to the ship. I cannot, therefore,subscribe to the contention that the contract signed in London was anagreement to sell and that each delivery in Colombo by the Ceyloncompany was an actual sale by the latter on behalf of the appellantcompany.
The Deputy Solicitor-General referred to clause 9 of the contract assupporting his view, but far from supporting him, there is a reason for itsinsertion. The whole contract is a contract for sale of oil to be deliveredby stated instalments. Under section 30 (2) of the Sale of Goods Ordi-nance, No. 11 of 1896, where there is a breach by the seller in the deliveryof any one or more instalments or by the buyer to take delivery it is aquestion in each case, depending on the terms of the contract and thecircumstances of the case, whether the breach of contract is a repudiationof the whole contract, or whether it is a severable breach giving rise to aclaim for compensation, but not to a right to treat the whole contract asrepudiated It was to emphasize this aspect of the contract that theparties inserted clause 9. It puts into relief that the main contract wasthe one entered into in England, and unless the facts were so strong asto justify a Court in setting aside the whole contract, a breach or anynumber of breaches of the delivery or acceptance of delivery were onlyto be compensated by damages. It seems to me that the appellantcompany is not liable to be taxed under section 5 on the kind of contractbefore us. Thus there remains the further question whether the Crowncan tax the appellant under section 34 which was the only contention ofthe Commissioner before the Board of Review. In Grainger & Son v. Gouhg(supra) the House of Lords held as follows : —“ A foreign merchant whocanvasses through agents in the United Kingdom, for orders for the sale ofhis merchandise to customers in the United Kingdom, does not exercise atrade in the United Kingdom within the meaning of the Income Tax Acts,so long as all contracts for the sale and all deliveries of the merchandiseto customers are made in a foreign country ”. This is the headnote of thecase, but as I have already said the reference to the delivery was madebecause there was such delivery outside the United Kingdom in thatparticular case. What Lord Herschell said was as follows : —“ In allprevious cases contracts have been habitually made in this country.Indeed this seems to have been regarded as the principal test whethertrade was being carried on in this country ”.
In my opinion section 34 was inserted in the Ceylon Ordinance toinclude contracts which have been entered into as a result of the effortsof agents in Ceylon of a foreign principal, even when such contracts havebeen finally concluded outside Ceylon. This seems to be the intention ofthe draftsman when one considers the words “ is instrumental in selling
1 2 H. <b C. 200.
KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 357
or disposing It is difficult to construe section 34, but the words inlines 5 to 8 “ and whether the insurance, sale or disposal is effectedby such person or by or *on behalf of the non-resident person outsideCeylon ” must be read singuli in singulas as follows: to give the sectiona meaning “ and whether the insurance, sale, or disposal is effected bysuch person or when such person is instrumental in effecting any insurancesale or disposal, the insurance, sale or disposal is effected by or on behalfof the non-resident person outside Ceylon Otherwise there will be aninsurance, sale or disposal effected simultaneously by the separate actsof both the person in Ceylon and his principal outside Ceylon.
I cannot accede to the Deputy Solicitor-General’s argument that eachdelivery in Ceylon was a sale or disposal by the agent, for reasons wjbichI have stated previously. Nor can I accede to his argument that thewords “ sells or disposes ” will include a mere delivery in Ceylon ofgoods already sold by a contract made outside Ceylon by a non-residentperson through a mere agent for delivery in Ceylon of the non-residentperson. The word “ disposal ” was used, I suppose to include contractsother than sales proper disposing of property, e.g., barters or exchanges.The sale or disposal when it refers to the person in Ceylon means in myopinion a sale or disposal by the person in Ceylon on behalf of his foreignprincipal as a definite legal act and does not include a mere delivery byan agent in Ceylon of goods sold in pursuance of a contract madeoutside Ceylon.
My opinion that the sale or disposal in reference to the agent in Ceyloncan only mean a sale or disposal by the agent is confirmed by the wordsin lines 4 and 5 “ whether such property is in Ceylon or is to be broughtinto Ceylon ”. Therefore the sale or disposal must be a complete legalact of the agent transferring title. The section is meant, as I have said,to catch up acts of canvassing which result in contracts of selling ordisposing outside Ceylon if the Crown can prove that the agent wasinstrumental in getting the sale or disposal fixed. In my opinion, theappellant is not liable to pay income tax upon the facts stated and he isentitled to his costs at the hearing of this case which will be taxed by theRegistrar and the fee of Rs. 50 paid by the appellant under section 74 (1)will be refunded to him.
Koch J.—
The appellant, the Anglo-Persian Oil Company, Ltd., being dissatisfiedwith the decision of the Board of Review, has requested the latter to statea case for the opinion of this Court on a question of law. That questionis whether the appellant company is liable to pay income tax upon thefacts set forth.
It would appear that the decision of the Board that the appellant wasliable was solely confined to his liability under section 34 of the IncomeTax Ordinance, and when the learned Deputy Solicitor-General sought toreason that on the facts stated the appellant was also liable to be taxedunder the provisions of section 5 of this Ordinance, appellant’s Counselobjected. I do not think there is any force in the objection in view of theterms of reference to us. We are asked generally for our opinion on thelaw on the facts as stated. The objection therefore must be overruled.
358KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
There is also the utility point of view which is worth considering, and"that is that nothing will be gained by the appellant if he succeeds undersection 34 but continues to be liable under section 5. The authoritieswill proceed to tax him duly under section 5. It is as well therefore thatJus liability be tested under section 34 and section 5 respectively.
The facts stated by the Board have been fully recapitulated by mybrother and there is no purpose to be served by my repeating them.
I shall first deal with the question of the liability of the assessee undersection 34 of the Ordinance. The contention of the Commissioner ofIncome tax before the Board of Review that the assessee was liable wasconfined to this section. This section presents some difficulty, but I amof opinion that after careful consideration it is clear that on the factsstated liability to pay does not attach to the assessee. This section makesprovision for the liability of non-resident persons by reason of facts doneby a person in Ceylon on behalf of a person resident abroad. These acts arespecifically set out in the section. Firstly, the acts must refer to theeffecting of a contract of insurance in Ceylon, or if the insurance is effectedout of Ceylon by the non-resident person, the latter would neverthelessbe liable if his agent in Ceylon was instrumental in bringing about thecontract. I advisedly use the words “ in bringing about” because I wishto emphasize the implication contained in the words “ effects or is instru-mental in effecting ”, which precede the words “ any insurance ” andwhich to my mind must be confined to acts that precede the making ofthe contract and do not extend to acts that succeed such contract andmay be necessary to implement it.
The same vein of intention on the part of the draughtsman, in myopinion, runs through the other contracts that follow, and that bringsme to the second type of contracts set out, viz., sales. Here againthe non-resident person would be liable if his agent in Ceylon sells anyproperty on his behalf in Ceylon, whether such property is at the time inCeylon or is to be brought into Ceylon; the non-resident person will alsobe liable although the sale was actually effected by him, if in point offact his agent in Ceylon acting on his behalf was “ instrumental in selling ”that property. Carrying out the idea already enunciated, I am of opinionthat the words “ instrumental in selling ” means aiding or assisting in“ bringing about ” the contract of such sale, which but for such aid andassistance may never have come off. A very apt illustration of this maybe negotiations on the part of the agent in Ceylon carried out in Ceylonthat have led to the making of the contract of sale of property in Ceylon,or to be brought into Ceylon, between the principals, both of whom maybe resident outside.
It has been strongly argued by the Deputy Solicitor-General thatdelivery is an integral part of a contract of sale ; in fact he pressed on usthat is was the essence of such a contract, and this being so, he maintainedthat delivery having actually taken place in Ceylon, the non-residentseller was liable to pay tax on the profits he derived from the sale.
I regret that I cannot agree with this submission. Delivery is not, inmy opinion, an essential requisite of a contract of sale to give it validityin every case, when entered into, although it may be a necessary conse-quence that follows in order to implement it.
KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 359
Our Sale of Goods Ordinance, No. 11 of 1896, in section 4 (1) sets forth :
“ A contract for the sale of any goods shall not be enforceable by actionunless the buyer shall accept part of the goods so sold, and actually receivethe same, or pay the price or a part thereof, or unless some note or memo-randum in writing of the contract be made and signed by the party to becharged or his agent in that behalf ”. For a contract to be said to be“ enforceable by action ” there must be a contract of binding effectalready entered into.
The second clause to this section says, that “ the provisions of thissection apply to every such contract, notwithstanding that the goodsmay be intended to be delivered at some future time, or may not at thetime of such contract be actually made, procured, or provided, or fit orready for delivery ”.
If then a contract which provides for a future delivery of the “ res ”is nevertheless an enforceable contract, I cannot see that delivery is anessential of the contract such as the “ res ”, “ pretium ” or “ consensus ”would be.
I do not agree with the learned Deputy Solicitor-General’s argumentthat the contract in question was a mere agreement to sell and not acontract of sale, and that it only became a contract of sale when theCeylon company “ ascertained the requirements of oil ” after the shiprequiring oil entered the port of Colombo.
A contract of sale has been defined to be a contract when under itsterms express or implied the seller transfers or agrees to transfer theproperty in the goods to the buyer. A sale takes place when the propertyin the goods transferred from the seller to the buyer, but where thetransfer of the property in the goods is to take place at a future date, thenwhen such time elapses, what until then was only an agreement to sellbecomes a sale.
Reading the contract as a whole and taking into consideration theintention of the parties, regard being had to the terms thereof and also tothe conduct of the parties and the circumstances of the case as has beenrequired to do under section 17 (2) of our Sales Ordinance, I have littledifficulty in coming to the conclusion that the understanding was that theproperty in the goods passed at the date the contract was entered intobut the delivery was postponed for future dates. I am supported in thisview by the circumstances that on the facts stated to us considerablestocks of oil are stored by the assessee in tanks in Ceylon belonging to theCeylon company to meet the obligation of the appellant company inrespect of contracts entered into in London by the appellant companywith the shipowners, the shipowners undertake to purchase their wholerequirements of fuel oil from the appellant company, and the appellantcompany must have ready and available at Colombo sufficient oil to meetthose requirements. The maximum and minimum quantities have alsobeen fixed, and the sellers by the terms of the contract not only boundthemselves to sell but the buyers had bound themselves to buy.
:Section 18, rule 1, of the Sale of Goods Ordinance says that where thereis an unconditional contract for the sale of specific goods in a deliverablestate the property in the goods passes to the buyer when the contract ismade, and it is immaterial whether the time of payment or delivery or
■360KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
both be postponed. The contract in question is unconditional, thegoods are specified and they are in a deliverable state, so far as oil storedin tanks for sale can always be said to be in a deliverable state.
Rule 5(1) further provides for the sale of unascertained or future goodsby description and lays down that such goods in a deliverable state canbe unconditionally appropriated to the contract by assent when theproperty in the goods would pass to the buyer. The assent may beexpress or implied. I think it is clear therefore that the intention wasthat the property in the goods should pass at the time of the contract,the sellers and buyers had bound themselves to sell and buy maximumand minimum quantities respectively which were fixed and so was theprice, but delivery was postponed to suit the convenience of the buyer.
The “ ascertainment of the requirements of the buyer ” on the part ofthe seller’s agent here was nothing more than to receive a demand fordelivery from the buyer after the ship arrived in port.
Clause 7 of the contract provides for the buyers giving the seller’s agent(the Ceylon company), 48 hours’ notice of each delivery they require underthis contract.
Clause 9 reads, “ each delivery shall constitute a separate contract ”.Respondent’s Counsel depended on this condition for his argument thatthe contract was only an agreement to sell until the delivery took place.
I do not agree that this clause was inserted for that purpose or that itsappearance in the contract substantiates the position taken up by therespondent. In my opinion, this provision was included for no otherreason than to make clear that a breach on the part of the seller’s agent todeliver in Colombo according to the instalments contemplated when calledupon, should not be considered a repudiation of the whole contractbut a severable breach giving rise to a claim for compensation—videsection 31 of the English Sale of Goods Act, 1893. If this is once madeclear, the reference in this clause of the contract to the delivery would,on the other hand, tend to support my view that the property had alreadypassed and delivery was merely postponed.
It has been held in Higgins v. Pumpherston Oil Co.1, that the inser‘ :onof a clause, such as No. 9 above referred to, made each delivery stand byitself, and the buyer cannot enforce delivery of arrears, it being his dutyto buy in against the seller on the occasion of each separate breach.
I therefore hold that although the agent in Ceylon may actually deliverthe res or may be instrumental in such delivery, if he did not actuallyeffect the contract, or if he was not instrumental in effecting it, the non-resident would not be liable on the profits arising from that contract.
The next argument of the learned Deputy Solicitor-General is that ifthe act of delivery by the agent in Ceylon cannot rightly be brought inunder the words “ sells or is instrumental in selling ”, it is clearly caughtup by the words that immediately follow, namely, “ disposes or is instru-mental in disposing ”.
Now, if it was intended to introduce the words “ disposes ” to includethe mere physical act of delivery of the property sold, the submissionwould have been right, but is this word so intended or has it been insertedto provide for contracts other than sales out of which profits may accure ?
1 {1893) 20 Ret. 532.
KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax. 361
The real difficulty in the interpretation of this section now arises. I havevery carefully considered the arguments for and against and feel thatthe legislature intended to tax profits derived by a non-resident personfrom every type of contract entered into in the circumstances set forthin the section. It first referred to a common type of business contractsin Ceylon, viz., insurances, next a commoner type of business transactions,viz., sales, next and finally, it used a very comprehensive word to includeall other contracts which involved the disposal of “ property in Ceylon orto be brought into Ceylon ”. These latter words are helpful in arrivingat what really the words “ disposes of ” mean. If “ disposes ” was meantto include a mere delivery, how is it possible to effect such an act inconnection with property not in Ceylon at the time but expected to arrive•later ? It might be asked if “ disposes ” does not include an act ofdelivery that accompanies or follows a sale but was intended to includegenerally contracts other than sales under which profits passed, whatcould be the contracts so contemplated ? The answer for one can becontracts of barter or exchange. Such contracts were the backbone oftrade and business in times past and even to-day resuscitated in some partsof the world. The difficulty of estimating the actual profits arising fromsuch transactions is another matter and cannot affect the appropriatenessof the illustration. Profits did—very large profits they were—arise frombarter or else no trade by way of barter could obtain. Voet refers freelyto such contracts. Why should profits arising on such contracts not betaxed under our Income Tax Law ? This is, however, only one type,there are others.
My view is that the word “ disposes ” connotes clear and intelligiblecontractual relations between the agent in Ceylon and the disposee andwas not intended to refer to such a detail as a mere delivery that may tothe imaginative mind be performed even by a non-human agency.
If the draughtsman really intended to provide for cases of mere deli-veries under sale contracts, nothing could have been easier than to insertwords appropriate to such an idea, e.g., “ sales or deliveries thereunder ”.It would not be extravagant to expect this as the term “ goods sold anddelivered ” is well known in legal circles and is a familiar expression indrafting. To give one instance, vide section 9 of Ordinance No. 22 of 1871(Prescription Ordinance) :—“No action shall be maintainable for or inrespect of any goods sold and delivered or for any shop bill …. ”
The draughtsman does not stop at the words “ goods sold ” but tacks onthe words “ and delivered ”.
For these reasons I am of opinion that in the circumstances the pro–visions as contained in section 34 do not impose any liability on theappellant to pay tax.
I now come to the second point, and that is, the assessee’s liabilityunder section 5. This section provides for income tax being chargeableon “ profits and income arising in or derived from Ceylon ” in the case ofa person non-resident in Ceylon. In sub-section (2) “ profits and incomearising in or derived from Ceylon ” are for the purposes of the Ordinanceconsidered to include all profits and income derived from services renderedin Ceylon or from property in Ceylon or from business transacted inCeylon whether directly or through an agent. It is only reasonable to
362 KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income Tax.
suppose that the Ceylon (agent) company have been and are being paidfor the storage of oil supplied by the assessee company and also for theirservices to the assessee company. Under this sub-section the Ceyloncompany can be taxed and has presumably been taxed for the profitsderived by it on this head.
We next come to profits and income derived from property in Ceylon.
I consider this to mean that profits are taxable if they arise out of someimmovable property situate in Ceylon such as a tea or rubber estate, or asthe result of trade connected with commodities or products manufacturedor grown in Ceylon. N The oil in question is not the product of this Islandbut has been transported from abroad to be merely stored here anddelivered by the Ceylon company to the steamship company, whentheir vessels call and their requirements are notified, the Ceylon companybeing merely an agent for storage and delivery for the assessee non-resident company. This point did give some trouble while the learnedDeputy Solicitor-General was outlining his argument, because I felt thatthere was reason in his insisting that were it not for Ceylon and theproperty (oil) being available to the steamship company in Ceylon,there would be no purpose in the entering into of the contract. At theclose of the arguments, however, on this point, I felt that the words“ property in Ceylon ” could not be said to be any property whatsoeverthat happened to be in Ceylon irrespective of the fact of its being senthere for the sole purpose of delivery to a party who was to accept it underan agreement entered into abroad, under which agreement the quantity,price and method of delivery, &c., were all previously arranged andprovided for.
What remains to be considered is whether the profits that have beentaxed have arisen from “ a business transacted in Ceylon ”, whetherdirectly or through an agent.
The precise words in the English Income Tax Act of 1918 are “ profitsor gains arising or accruing from any trade exercised within the UnitedKingdom ”. Now, if the words in our Ordinance have the same meaningas that intended by the words in the English Act, there is a series ofauthoritative decisions showing what actually was meant. It is thereforenecessary to learn whether the difference in phraseology between ourOrdinance and the English Statute on this point materially matters.
The case of Commissioner of Taxes v. Lovell & Christmas, Ltd., thatcame up before the Privy Council, reported in (1908) Appeal Cases, p. 46,is very helpful. This was an appeal from the decision of the SupremeCourt of New Zealand. Four of the learned Judges of that Court held infavour of the Commissioner but Stout C.J. dissented. The words in theNew Zealand Act were “ income derived from business ”, which are wordsvery closely allied to the words in our Ordinance. The facts, as stated,and on which the Privy Council based their decision, can be summarizedthus: Lovell was a salaried officer of Lovell & Christmas, Ltd. Heresided in and had no other business in New Zealand. His companycarried on in London the business of provision agents. That businessconsisted of selling in London dairy produce sent from New Zealand andother parts of the world. The company had established credit at all the
KOCH J.—Anglo-Persian Oil Co. v. Commissioner of Income 7 ax. 363
Nqw Zealand banks. Every year a servant of the company, Mr. Kowin,arrived in New Zealand, met Lovell, and attended together meetings ofthe different butter and cheese factories and endeavoured to persuadethe directors of these factories to consign their season’s output to thedefendant company to be sold in London on commission. The defendantcompany from London instructed Mr. Kowin and Lovell of the amountto which it was prepared to make advances. Mr. Kowin and Lovell thei^entered into negotiations with the dairy companies and interviewed theirdirectors and offered verbally to make advances within the limit so fixed.The defendant company thereupon made the necessary advances througha Bank in New Zealand against shipping documents. The produceshipped was sold in London by the defendant company on commission.
On these facts the majority of the Supreme Court of New Zealandconsidered that the case fell within the principle of the English caseErickson v. Last which when applied made the profits on the commissionsales profits derived from contracts made in New Zealand and thereforederived from business in New Zealand and so liable to payment of incometax in New Zealand. Stout C.J. on the other hand was of opinion thatthe principle laid down in Grainger v. Gough was the one to be followed.The Privy Council agreed with the view of the dissenting Judge, Stout C. J.and was of opinion that the business which yielded the profit was thebusiness of selling goods on commission in London. The commission wasthe consideration for effecting such sales, and the monies received by thedefendant company out of which they deducted their commission andfrom which therefore their profits came, were paid to them under the saleseffected in London. The earlier arrangements entered into in NewZealand were merely tranactions, the object and effect of which was tobring goods from New Zealand within the net of the business in Londonwhich was to yield the profit. The Privy Council was further of opinionthat although the language of the English Income Tax Act and that of theNew Zealand Act were not identical, there was sufficient similarity insubstance to make the English decisions authoritative as to the principlesto be applied to the interpretation of the Colonial Act.
Now, if in spite of the canvassing by the defendant company’s officialsin New Zealand and the arrangements made by them in New Zealandwith the dairy companies to ship to London on advances received in NewZealand through banks in New Zealand the opinion of the Privy Councilwas that the profits arising from the commission sales in London cannotrightly be said to be “ income derived from business ” carried on in NewZealand, how much stronger would be the case of the resisting taxpayeron the facts of the case before us, when all that was done in the taxingcountry was ascertaining the requirements and making a delivery?
The language of our Ordinance is much more similar in substance tothat of the New Zealand Act, and therefore while the opinion of the PrivyCouncil in the New Zealand case on the law would apply in its full intensityto Ceylon, the authoritative English decisions as-to the principles to beapplied to the interpretation of the words “ from any trade exercisedwithin the United Kingdom ’’ will also apply to the interpretation of thewords of our Ordinance, namely, “ from a business transacted in Ceylon ”.
1 (1881) 8 Q. B. D. 414.* (1896) A. C. 325.
27/38
364
ABRAHAMS C.J.—Tundid v. Meeran Pillai.
These decisions have been clearly and fully considered by my brother,and agreeing as I do with him in his comments regarding them, I think itunnecessary for me to say anything more than that they (the decisions)positively disclose that the crucial test is the place where the businesscontract has been made.
On the facts stated by the Board to us, and applying the law to them,I have therefore no hesitation in holding that the profits of the appellantcompany do not arise in Ceylon or are derived from Ceylon. It is myopinion therefore that the appellant upon the facts stated to us is notliable to pay income tax either under section 34 or section 5 of our IncomeTax Ordinance.
I agree with the order made by my brother as to costs.
Appeal allowed.