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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1038 of 1973.

Appeal by certificate from the Judgment and Order dated the 19th February 1973 of the Calcutta High Court in Appeal from Original Order No. 200 of 1971.

S. Chowdhuri, P.P. Ginwala, T.A. Ramachandran and D.N. Gupta for the Appellants.

V.S. Desai, Champt Rai and Miss A. Subhashini for Respondents No. 1 & 2.

The Judgment of the Court was delivered by VENKATARAMIAH, J. This appeal by certificate under Article 133 of the Constitution arises out of a writ petition filed by the appellants under Article 226 of the Constitution of India before the High Court of Calcutta. The appellants are partners of a firm of Solicitors known as M/s. Orr Dignam & Co. having its office at Calcutta. The appellants acted as the Solicitors of a German Corporation known as Ferbwerke Hoechst Aktiengesellschaft Vormals Mester Lucius & Bruning (a Corporation organised under the law of Federal Republic of Germany) (hereinafter referred to as 'the German Corporation' ) in two suits filed on the Original Side of the Calcutta High Court-one Suit No. 511 of 1962 filed by the Bengal Chemical and Pharmaceutical Works Ltd. against German Corporation and another Suit No. 1124 of 1962 filed by the German Corporation against the Bengal Chemical and Pharmaceutical Works Ltd. on the alleged infringement of a patent. The appellants were instructed by a firm of Solicitors in London namely M/s. Ashurst, Morris, Crisp & Co. (hereinafter referred to as 'the London Solicitors') who were also acting for the German Corporation by a cable dated May 31, 1965 to retain in the said suits Mr. Blanco White Q.C., a resident of the United Kingdom, who was a barrister having considerable practice in the branch of patent law. On his arrival in India, the appellants accordingly retained Mr. Blanco White as the counsel to argue the case of their clients-the German Corporation even though they did not deliver any briefs to him and also did not pay or undertake any obligation to pay any fees for his services. The briefs had been earlier delivered by the London Solicitors. It is stated that they did not know as to how much amount was payable to him by the London Solicitors by way of fees. The hearing of one of the said two suits lasted for thirteen days commencing from January 27, 1970 and was concluded on February 16, 1970. Mr Blanco White left India on February 17, 1970 after the hearing was over without making any arrangement regarding the payment of income tax on the fees earned by him by arguing the case of the German Corporation. Thereafter on February 19, 1970, the appellants received a notice from the Income-tax Officer, 'A' Ward, Foreiga Section asking them to furnish information about the fees earned in India by Mr. Blanco White as counsel engaged by them to argue the case of their clients i.e. the German Corporation and also drawing their attention to the liability arising under section 195 (2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') which required them to deduct the tax payable under the Act at source on payments made to a non-resident. The appellants sent a reply to that letter on February 24, 1970 stating that Mr. Blanco White had been engaged by the London Solicitors of the German Corporation to appear before the Calcutta High Court on behalf of the German Corporation and that they had neither briefed him nor had they incurred any liability to pay him any fees. They, therefore, denied their liability under section 195(2) of the Act. Incidentally it may be stated here that the appellants referred to one other suit i. e. Suit No. 422 of 1963 on the file of the Calcutta High Court filed by the German Corporation against Albert David Ltd. in which also Mr. Blanco White had been engaged for the German Corporation. Thereupon by a letter dated February 27, 1970 the Income-tax Officer informed the appellants that he proposed to proceed against them under section 163 (1) of the Act treating them as the agents of Mr. Blanco White on the ground that the income in question had arisen on account of the business connection that existed between the appellants and Mr. Blanco White. To this, the appellants sent a long reply dated March 10/11, 1970 denying their liability to be proceeded against under section 163 (1) of the Act. In the course of the said reply, the appellants contended inter alia that they had not either engaged or briefed Mr. Blanco White in the three suits on the file of the Calcutta High Court; that they had not paid or promised to pay any fees lo him and that, therefore, no income had accrued to Mr. Blanco White on account of any business connection that existed between them and Mr. Blanco White. The appellants further contended that as Mr. Blanco White was a barrister who was not carrying on any business but had only, rendered professional service in Calcutta, the connection if any, could not be a business connection. They also questioned the jurisdiction of the Income-tax Officer to make any assessment treating them as the representative assessees of Mr. Blanco White. The Income-tax Officer by his letter dated March 25, 1970 rejected the plea of the appellants and called upon them to appear before them on April 18, 1970 to make any other submission that they had to make. Thereafter the appellants filed a petition under Article 226 of the Constitution before the High Court of Calcutta and obtained a rule nisi on May 25,1970) calling upon the Income-tax Officer, the Commissioner of Income-tax West Bengal and the Union of India to show cause as to why the proposal to initiate proceedings under the Act as stated above should not be quashed and a writ in the nature of mandamus prohibiting them from proceeding against the appellants under section 163(1) of the Act should not be issued. The petition was contested by the respondents. In the Counter Affidavit filed by the Income-tax Officer, it was asserted that the Department had received information that Mr. Blanco White had charged Rs. 17,000/- per day by way of fees for appearing in the Calcutta High Court in the suits referred to above; that Mr. Blanco White was not domiciled in India; that inasmuch as his stay in India did not exceed ninety days it was not necessary for him to obtain a Tax Exemption Certificate for leaving India; that the appellants had acted as instructing Solicitors to the German Corporation in the three suits in which Mr. Blanco White had argued as counsel; that he could not have, according to the Calcutta High Court Rules (Original Side) appeared before that court unless he was instructed by an Attorney of that Court was in the instant case happened to be the appellants and that, therefore. there existed a business connection which brought the appellants within the scope of section 163(1) of the Act. It was also contended by the respondents that the petition was premature as the matter had still to be decided in accordance with the procedure prescribed by the Act. The learned Single Judge who heard the petition was of the view that the question whether the case came within the purview of section 163(1) had to be determined after ascertainment of facts by the Income-tax Officer and that therefore, the petition was liable to be dismissed on the ground that it was a premature one. Accordingly he dismissed it without expressing any opinion on the merits of the case. Aggrieved by the decision of the Single Judge, the appellants preferred an appeal before the Division Bench of the Calcutta High Court. The Division Bench dismissed the appeal holding, inter alia, that from the facts disclosed before the Court it appeared that from May 31, 1965 upto February 16, 1970 there was business connection (directly of indirectly through correspondence) between the appellants firm and the non- resident British counsel, Mr. Blanco White, that it could not be said that there was no element of continuity and that the transaction was a solicitory and isolated one and that taking into account the surrounding circumstances and particularly the relationship between the Solicitors and a counsel, an agency could very well be said to have been established between the appellants' firm and the non- resident British counsel, Mr. Blanco White. The Division Bench further held that there was business connection between them and that it was not possible to accept the contentions of appellants that no income either accrued or arose to Mr. Blanco White in India. The appeal was accordingly dismissed. On a certificate granted by the Division Bench under Article 133 of the Constitution, the appellants have come up in appeal to this Court against the judgment of the Division Bench of the High Court.

It is necessary to refer at this stage to certain relevant facts of the case. The appellants were acting as the Solicitors of the German Corporation in India in the cases referred to above and the London. Solicitors were acting as its Solicitors in London. Suits Nos. 511 and 1124 had been instituted in 1962 and suit No. 422 in 1963. On May 31, 1965, the London Solicitors sent a cable to the appellants which read as follows:-

" Dignior Calcutta We act for Farewerke Hoechst this country and understand that you act India stop in connection acting infringement Indian Tolbutamide patent have been instructed to retain Blanco White as counsel to attend hearings Calcutta and Bombay stop Imperative to know dates of respective actions since counsel can only accept subject to other Commitments stop Please cable hearing dates if known or date when Information available stop our Ref Lcc.

Ashursts London Col Blanco White REF: LCC."

The above cable shows that the London Solicitors had sought information about the suits in Calcutta to enable them to engage Mr. Blanco White to plead on behalf of the German Corporation in the said suits. On December 23, 1969, the London Solicitors wrote a letter to the appellants in which it was stated that the copies of certain documents sent by the appellants had been handed over to Mr. Blanco White in addition to copies of certain other documents which they themselves had handed over to him. A part of the aforesaid letter which is relevant for the purpose of the present case, is reproduced below:-

Mr. Blanco White left India on February 17, 1970 without making any arrangement for the settlement of his liability under the Act. When the Income-tax Officer issued the notice dated February 19, 1970 to the appellants drawing their attention to the provisions contained in section 195(2) of the Act and requesting them to furnish information regarding the income earned by Mr. Blanco White by arguing the case before the Calcutta High Court on behalf of the German Corporation, the appellants replied on February 24, 1970 stating that the London Solicitors had engaged Mr. Blanco White to appear on behalf of the German Corporation before the Calcutta High Court; that the appellants had not briefed him nor did they know on what fees, if any, he had been engaged. In their letter dated March 10/11, 1970 to the notice dated February 17, 1970 issued by the Income-tax Officer to the appellants under section 163(1) of the Act, the appellants again stated that they had not engaged or delivered any brief to Mr. Blanco White and that they had no business connection with him. It was urged before the High Court by the appellants that there was no sort of connection between the appellants and Mr. Blanco White and even if there was any connection, it was just a casual one and could in no case be termed as business connection: that they had not undertaken to pay any fees to him for appearing in the suits and that, therefore, the appellants were not liable to be assessed. The Division Bench of the High Court which heard the appeal came to the conclusion that there was business connection between the appellants and Mr. Blanco White; that it could not be said that there was no element of continuity and the transaction was a stray or an isolated one and that the appellants were not entitled to the issue of the writ prayed for on the facts and in the circumstances of the case.