1976 (3) TMI 4 - SC - Income Tax

Non-resident manufacturer sold textiles to merchants in British India. Whether apportionment of profits from sales towards profits accruing in British India could be estimated and whether the estimate could be disturbed - proportion fixed by the Tribunal based upon relevant material, should not be disturbed - question as to what proportion of the profits of the sales in various categories arose or accrued in British India is essentially one of Question of Fact

Summary

Issues:
Interpretation of income arising from sales transactions in British India for the appellant during specific calendar years under the Indian Income-tax Act, 1922.

Detailed Analysis:
The judgment by the Supreme Court, delivered by Justice Khanna, pertained to five Civil Appeals arising from references under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee-appellant, a public limited company owning a textile mill in Indore. The appeals concerned the income of the appellant during the years 1941, 1942, 1944, 1945, and 1946, with relevant assessment years ranging from 1942-43 to 1947-48. The primary issue was the determination of the portion of income arising from sales transactions in British India. The case primarily focused on the assessment year 1942-43, with the Income-tax Officer finding that profits from sales transactions in British India amounted to Rs. 4,60,560, with a portion assessable to Indian income-tax.

The High Court initially answered in favor of the assessee on one question, leading to an appeal to the Supreme Court. In a previous decision, the Supreme Court held that profits from sales transactions passing property to the purchaser in British India were assessable to Indian income-tax. The case was remitted to the High Court to address another question, which was later found to have not been adequately considered. The Tribunal subsequently determined that a portion of profits from sales transactions in different categories accrued in British India based on specific percentages for each category.

The Tribunal's findings were based on the modus operandi of sales transactions in different categories, highlighting the involvement of British Indian merchants, brokers, and the execution of contracts in British India. The Tribunal also noted the organization maintained by the assessee in British India to facilitate sales transactions. The Supreme Court emphasized that the determination of the proportion of profits arising in British India is a factual issue dependent on the circumstances of the case and involves an element of estimation. The Court accepted the appeals, setting the profit arising and accruing in British India for the assessment year 1942-43 at Rs. 54,400, and apportioned specific percentages of profits from different sales categories as accruing in British India.

In conclusion, the Supreme Court allowed the appeals, discharged the High Court's answer to a specific question, and determined the profits arising in British India for the appellant for the relevant assessment year. The judgment highlighted the factual nature of determining profit apportionment in such cases and upheld the Tribunal's findings based on relevant material.