1968 (1) TMI 11 - HC - Income Tax

Assessees were doing business of manufacturing and selling textiles - sales - classification -Tribunal was right in holding that in respect of sales, the profit was correctly determined by the application of rule 33 and one-third of the profits so determined could be said to accrue or arise in British India

Summary

Issues Involved:
1. Applicability of Rule 33 of the Indian Income-tax Rules to the profits from sales.
2. Determination of where the profits accrued - British India or Indore State.
3. Apportionment of profits between British India and Indore State.

Detailed Analysis:

1. Applicability of Rule 33 of the Indian Income-tax Rules to the Profits from Sales:
The primary issue was whether the Tribunal was correct in determining that the profit from sales amounting to Rs. 14,80,059 was correctly determined by the application of Rule 33, and whether one-third of these profits could be said to accrue or arise in British India.

2. Determination of Where the Profits Accrued - British India or Indore State:
The assessees, Hukumchand Mills Ltd., were involved in manufacturing and selling textiles, with sales occurring both in British India and Indore State. The sales in question were categorized into four groups by the Income-tax Officer, focusing on sales canvassed by company representatives in British India, sales through brokers and agents in British India, sales to British Indian merchants during their visit to Indore, and sales to British Indian merchants at the time of their or their brokers' visit to Indore.

The Supreme Court had previously ruled that the income from these sales accrued in British India, as the property in the goods passed in British India. This was based on the method of delivery, where railway receipts were made out in the name of "self" by the assessee and endorsed in favor of the customer, with the sale proceeds received through the Imperial Bank of India, Indore. The Supreme Court emphasized that the place of delivery and payment determined where the property in the goods passed, thus making the income taxable in British India.

3. Apportionment of Profits Between British India and Indore State:
The Tribunal and the Appellate Assistant Commissioner concurrently assessed the proportion of profits attributable to operations in British India at 33 1/3%, with the remaining 66 2/3% attributed to operations in Indore State. This apportionment was based on the principle laid down in Rule 33, although Rule 33 itself was not directly applicable as these were actual profits, not deemed profits.

The Tribunal found that the assessee maintained an organization in British India, which was involved in canvassing for sales. The groundwork for sales was done in British India, while the contracts were finalized in Indore. The Supreme Court's decision in Anglo-French Textile Company Ltd. v. Commissioner of Income-tax was cited, establishing that profits accrue where business operations are carried out. Therefore, the nature and extent of operations in British India were considered in apportioning the profits.

The Tribunal's estimate of 33 1/3% of profits attributable to British India was deemed fair and based on relevant facts. This estimate was consistent with other cases where a similar proportion of profits was attributed to operations within taxable territories.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that one-third of the profits from the sales in question accrued in British India and were taxable. The apportionment of profits at 33 1/3% for British India and 66 2/3% for Indore State was found to be reasonable and supported by the facts. The assessee was ordered to pay the costs of the Commissioner.