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Issues Involved:
1. Whether Nandlal Bhandari Mills Ltd., Cawnpore, can be treated as agents of the non-resident firm Nandlal Bhandari & Sons, Indore, under Sections 42 and 43 of the Indian Income-tax Act. 2. Interpretation and application of Sections 42 and 43 of the Indian Income-tax Act. Issue-wise Detailed Analysis: 1. Whether Nandlal Bhandari Mills Ltd., Cawnpore, can be treated as agents of the non-resident firm Nandlal Bhandari & Sons, Indore, under Sections 42 and 43 of the Indian Income-tax Act: The court examined the deed of agreement executed on 27th February 1922, which appointed Nandlal Bhandari & Sons as secretaries, treasurers, and agents of the Company. The agreement stipulated that Nandlal Bhandari & Sons were to manage the business of the shop and receive a commission on sales. The Income-tax Officer served a notice on the Cawnpore branch to show cause why it should not be treated as the agent of the non-resident firm under Section 43 of the Act. Despite various contentions, the Income-tax Officer declared the branch at Cawnpore as agents of the non-resident firm, and the assessment was made accordingly. The Assistant Commissioner of Income-tax dismissed the appeal, and the application for review under Section 33 was also disallowed. The Commissioner referred the question to the High Court for a decision. 2. Interpretation and application of Sections 42 and 43 of the Indian Income-tax Act: Section 42(1) provides that profits or gains accruing to a person residing outside British India through a business connection in British India shall be deemed income accruing in British India and chargeable to income-tax in the name of the agent of such person. Section 43 states that any person employed by or on behalf of a non-resident person or having any business connection with such person, upon whom the Income-tax Officer has served a notice, shall be deemed to be such agent. The court noted that the term "business connection" signifies dealings of a commercial nature between the parties, including the buying and selling of commodities and the relationship of creditor and debtor. The court emphasized that a person may be fictionally deemed to be an agent for the purposes of the Act even if they are not an agent as ordinarily understood at law. The court found that the language of Section 43 permits the Income-tax authorities to treat the branch at Cawnpore as agents of the non-resident firm if the conditions of Sections 42 and 43 are satisfied. The court reviewed various authorities to interpret the relevant sections. It distinguished the English case of Greenwood v. F.L. Smidth & Co., noting that the Indian Income-tax Act does not use the term "exercising a trade" as in the English Act. The court also discussed the decisions in The Board of Revenue v. The Madras Export Company, In re Rogers Pratt Shellac & Co. v. The Secretary of State for India, Jiwan Das v. Income-tax Commissioner, Lahore, Commissioner of Income-tax, Bombay Presidency v. Bombay Trust Corporation Ltd., Commissioner of Income-tax, Bombay Presidency v. Sarupchand Hukumchand of Bombay, and Commissioner of Income-tax v. Remington Typewriter Co., Ltd. The court concluded that the commission received by Nandlal Bhandari & Sons on sales effected at Cawnpore is in the nature of profits or gains accruing through a business connection in British India. Therefore, it must be deemed income accruing in British India. Since there is a business connection between the branch at Cawnpore and the non-resident firm, the resident branch must be deemed the agents of the non-resident firm under Section 43, and the profits accruing to the non-resident firm will be chargeable in the name of their fictional agents in British India. Conclusion: The court answered the reference in the affirmative, holding that Nandlal Bhandari Mills Ltd., Cawnpore, can be treated as agents of the non-resident firm Nandlal Bhandari & Sons, Indore, under Sections 42 and 43 of the Indian Income-tax Act. The fee of counsel for the department was assessed at Rs. 200. Reference answered accordingly.
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