1968 (9) TMI 1 - SC - Income Tax

Assessee is a firm carrying on business in Bangalore in the Mysore State - appointed as the sole selling agent for Ceylon - income of the assessee did not arise in Bangalore (Mysore State) in respect of sales effected to the Burma Teak Trading Co. Ltd., Colombo - assessee was entitled to the concession under States (Taxation Concessions) Order, 1950. in respect of the profits that could be attributed towards business operations conducted in Bangalore and Ceylon - Revenue s appeal dismissed

Summary

Issues:
1. Determination of the place where the income of the assessee arose from sales to Burma Teak Trading Co. Ltd.
2. Eligibility of the assessee for tax concessions under the Part B States (Taxation Concessions) Order, 1950.
3. Necessity of apportioning profits of business due to trading activities in Bangalore.

Analysis:

1. The primary issue in this case was to ascertain the location where the income of the assessee arose from sales to Burma Teak Trading Co. Ltd. The assessee, a firm operating in Bangalore, claimed that the income should be treated as accruing in the Part B State due to its registered office being in Bangalore and the agency agreement with the purchaser being entered into there. However, the tax authorities and the Appellate Tribunal ruled against the assessee, stating that minimal activity occurred in Bangalore regarding the profits from the transactions in question.

2. Regarding the eligibility of the assessee for tax concessions under the Part B States (Taxation Concessions) Order, 1950, the High Court observed that since the profits were received in Bangalore, it could not be conclusively stated that the entire profit accrued there within the meaning of the Income-tax Act. The High Court further noted that business operations producing profits were conducted at multiple locations, including Bangalore, Feroke, and Ceylon. Consequently, the High Court determined that the assessee was entitled to concessions for profits attributed to business operations in Bangalore and Ceylon.

3. The final issue pertained to the necessity of apportioning profits of the business due to trading activities in Bangalore. Section 42(3) of the Income-tax Act stipulates that when profits arise from business operations conducted outside taxable territories, the profits must be apportioned among the locations where the operations occurred. In this case, the contracts entered into at Bangalore played a crucial role in the subsequent profit-producing activities, leading to the conclusion that profits accrued in Bangalore. The court upheld the High Court's decision, emphasizing that the making of contracts in Bangalore was an integral part of the selling operations, warranting the apportionment of profits.

In conclusion, the Supreme Court dismissed the appeals, affirming the High Court's decision on all three issues. The judgment highlighted the significance of the location of business operations in determining the accrual of profits and the eligibility for tax concessions under relevant orders and laws.