1945 (1) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of profits and gains derived from sales made at Cawnpore by the assessee's salesman of goods manufactured at Ujjain.
2. Taxability of profits and gains derived from sales made from Ujjain to customers in British India through brokers in British India.

Issue-Wise Detailed Analysis:

1. Taxability of Profits and Gains Derived from Sales Made at Cawnpore:

Relevant Question:
"Whether, on the facts of the case, the profits and gains derived from sales made at Cawnpore by the assessee's salesman of the goods manufactured by the assessee at Ujjain outside British India were rightly held to accrue or arise to the assessee in British India within the meaning of Section 4(1)(c) or received in British India by or on behalf of the assessee within the meaning of Section 4(1)(a) of the Indian Income-tax (Amendment) Act, 1939?"

Judgment Summary:
The court held that the profits and gains derived from sales made at Cawnpore by the assessee's salesman were rightly held to have been received in British India by or on behalf of the assessee within the meaning of Section 4(1)(a) of the Indian Income-tax Act, 1922, as amended. It was also held that these profits and gains accrued or arose to the assessee in British India within the meaning of Section 4(1)(c) of the same Act. The court emphasized that the gross profits, indeed the gross sale proceeds, were received in British India, and this fact was not disputed. The court rejected the argument that Section 42(1) of the Act could be divorced from Sections 3 and 4, stating that the general charge of income-tax is imposed by Sections 3 and 4, and Section 42(1) gives a particular application in respect of a non-resident.

The court also clarified that the relief afforded by Section 42(3) applies only to profits and gains deemed under Section 42 to accrue or arise in British India, not to those that actually do so or are received in British India. The court concluded that the profits and gains derived from sales made at Cawnpore must be calculated without allowing any apportionment of that profit between the period prior to the moment of export from Gwalior and the moment subsequent to that export.

2. Taxability of Profits and Gains Derived from Sales Made from Ujjain to Customers in British India through Brokers:

Relevant Question:
"Whether, on the facts of the case, the profits and gains derived from sales made from Ujjain to customers in British India through brokers in British India were rightly held to be profits or gains deemed to have accrued or arisen to the assessee company in British India within the meaning of section 42(1) and assessable under sub-section (3) of that section?"

Judgment Summary:
The court found this question more difficult and considered the facts carefully. The court noted that the brokers in British India were not employees of the assessee and were not specially engaged by the assessee. The brokers canvassed orders from purchasers in British India and sent these offers to the assessee at Ujjain for acceptance or rejection. The contracts were generally for delivery "F.O.R. Ujjain," and goods were consigned to "self" at the destination, with railway receipts sent to purchasers through brokers or bankers.

The court emphasized that the question was confined to Section 42(1) of the Act and did not involve Sections 4(1)(a) and 4(1)(c). The court concluded that the income, profits, or gains did not accrue or arise "through or from any business connection in British India." The court noted that the expression "business connection" permits no precise definition and is a comprehensive term. The court found that the assessee had no branch, agency, or establishment of its own in British India and that the brokers were "free lance" brokers not retained by the assessee.

The court concluded that the sales to customers in British India did not amount to a "business connection in British India" from or through which the assessee derived profits or gains within the meaning of Section 42(1) of the Act. The court held that there was no such "business connection" as falls within Section 42(1) of the Act.

Conclusion:
The first question was answered in the affirmative, holding that the profits and gains derived from sales made at Cawnpore were rightly held to have been received in British India and accrued or arisen to the assessee in British India. The second question was answered in the negative, holding that the profits and gains derived from sales made from Ujjain to customers in British India through brokers were not deemed to have accrued or arisen to the assessee in British India within the meaning of Section 42(1). No order for costs was made as both parties succeeded and failed in one of the questions.