1961 (8) TMI 55 - HC - Income Tax

Summary

Issues Involved:

1. Profit determination on sales to the Government of India.
2. Profit determination on sales amounting to Rs. 14,80,059.
3. Proportionate part of profits on certain sales assessable to income-tax.

Issue 1: Profit Determination on Sales to the Government of India

The court examined whether the Tribunal was correct in holding that the profit of Rs. 7,36,156 on sales to the Government of India was correctly fixed in accordance with rule 33 of the Income-tax Rules. The assessee argued that the profit margin on these sales was lower than other sales, but failed to provide specific data to the Income-tax Officer. The Tribunal noted the absence of sectional accounts and held that the consolidated profit and loss account did not support the assessee's claim. The court agreed with the Tribunal, stating that without clear evidence, the profit determination by the department was justified. Therefore, the first question was answered in the affirmative.

Issue 2: Profit Determination on Sales Amounting to Rs. 14,80,059

The court analyzed whether the Tribunal was correct in determining the profit on sales amounting to Rs. 14,80,059 by applying rule 33 and attributing one-third of the profits to British India. The determination hinged on whether the income from these sales accrued or arose in British India. The sales fell into four categories:

1. Sales canvassed by the company's representative in British India.
2. Sales through brokers or agents in British India.
3. Sales where merchants visited Indore but contracts were signed in British India.
4. Sales to merchants in British India during their visits to Indore.

For the first category, the court found that the contracts were concluded and performed in Indore, and mere canvassing in British India did not cause the profits to accrue there. The second category was similar, with brokers' involvement not changing the location of profit accrual. The third and fourth categories involved contracts and deliveries in Indore, making it impossible for profits to accrue in British India. Thus, the court held that no part of the profits from these sales accrued in British India, rendering rule 33 inapplicable. Consequently, question No. 2 did not survive and was not answered.

Issue 3: Proportionate Part of Profits Assessable to Income-tax

The court considered whether the Tribunal was right in holding that a proportionate part of the profits on sales grouped under items Nos. 3, 4, 5, and 9 was assessable to income-tax. Given the findings on the second issue, the court concluded that no part of the profits from these sales accrued in British India, making rule 33 inapplicable. Therefore, question No. 3 was answered in the negative.

In conclusion, the court affirmed the Tribunal's decision on the first issue, but reversed its findings on the second and third issues, holding that no part of the profits from the specified sales accrued in British India.