1950 (1) TMI 17 - HC - Income Tax

Summary

Issues:
1. Interpretation of Sections 42(1) and (3) of the Income-tax Act in relation to income accruing from sales in British India of manufactured goods processed outside British India.
2. Determining whether the entire profits arising in British India should be considered for assessing residency under Section 4A(c)(b) or only profits attributable to operations in British India.

Analysis:
1. The judgment addresses the interpretation of Sections 42(1) and (3) of the Income-tax Act concerning income from sales in British India of goods manufactured outside British India. The court clarified that profits arising from sales in British India are deemed to have accrued in British India and cannot be apportioned based on manufacturing location. Section 42(3) applies only where profits are deemed to arise in British India under Section 42(1), not under Section 4A(c)(b). The court emphasized that for determining residency under Section 4A(c)(b), only profits arising in British India should be considered, without utilizing Section 42(1) and (3) for apportionment.

2. Regarding the second issue, the court ruled that the entire profits and gains from operations in British India must be included for assessing residency under Section 4A(c)(b). It was emphasized that Section 42(3) does not apply to the computation of profits under Section 4A(c)(b). Therefore, the court concluded that for the purpose of applying the residency test under Section 4A(c)(b), all profits and gains arising in British India should be considered, rather than only those attributable to operations conducted in British India.

This judgment clarifies the application of Sections 42(1) and (3) of the Income-tax Act in determining the taxation of profits from sales in British India of goods manufactured outside the country. It also provides guidance on the assessment of residency under Section 4A(c)(b) based on profits arising in British India, without apportioning profits based on manufacturing locations.