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TMI Blog1945 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... in equal to the profit that the Bhadohi shop would or might have derived from its customers in Bhadohi had the cloth been actually sold by that branch to customers in Benares State. In other words its own head branch in British India was notionally treated by the Bhadohi branch as its trading customer in the ordinary course of business. The Semohi shop remitted to its Bhadohi branch in the course of the same year sums amounting to ₹ 59,175-13-0 only, leaving a credit balance of ₹ 6,028 in favour of Bhadohi in the Semohi books. The Income-tax Officer accepted the Semohi books as correct and assessed the assessee as regards the income derived from the sale of goods at Semohi on the basis of the entries made in the account books. The Income-tax Officer, however, did not accept the Bhadohi books to be correct and made a best judgment assessment and came to the conclusion that the total profit earned by the Bhadohi shop was ₹ 9,573. As the whole of the invoiced purchase price of ₹ 65,203-13-9 had not been transmitted by the Semohi shop to the Bhadohi shop in the course of the year, the Income-tax Officer held that the balance of ₹ 6,028 must be taken to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to this Court and formulated a question of law which reads as follows:- "Whether, in the circumstances of the case, the Income-tax Officer has rightly included in the income liable to tax the amount of ₹ 9,573 on account of profits earned at Bhadohi in Benares State on the ground that though the said income accrued or arose in Benares State it was received or brought into British India within the meaning of Section 4(2) of the Act." This application was opposed by the department, but on October 24, 1942, the Income-tax Appellate Tribunal referred to us the following question for opinion:- "Whether, in the circumstances of the case, the Income-tax Officer rightly included in the income liable to tax the profit on the sale of goods priced at ₹ 65,203-13-9 and the estimated profit of concealed sales to Semohi on the ground that though the said income accrued or arose without British India it was received or brought into British India within the meaning of Section 4(2) of the Act, as it stood before its amendment in 1939." We shall deal with the second part of the question first which relates to the estimated profit of concealed sales to Semohi. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itish India it was received or brought into British India within the meaning of Section 4(2) of the Act, as it stood before its amendment in 1939". There is no difficulty in answering the first part of this question that the Income-tax Officer rightly included in the income liable to tax the profit on the sale of goods priced at ₹ 65,203-13-9. These goods, though brought from Bhadohi, were actually sold by the Semohi shop and the whole of the price was received in Semohi and there could be no manner of doubt that the Income-tax Officer was entitled under Section 4(1) of the Income-tax Act, as it stood before its amendment in 1939, to tax the same as profits received in British India. The second part of the question, if we may say so without meaning any disrespect to the Tribunal, really amounts to false demonstration. The income on the sale of the goods invoiced from Bhadohi to Semohi at ₹ 65,203-13-9 is certainly taxable but as we have already said, it is taxable not under Section 4(2) but under Section 4(1) of the Act. The reason to our minds is obvious. The Bhadohi shop and the Semohi shop were not separate legal entities. They belonged to the same assessee fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received in British India as soon as the goods were sold. The Income-tax Officer probably taxed the difference between the invoice price of ₹ 65,203-13-9 and the sale price in British India. But to our mind the amount taxable should have been based on the cost price, which would include, as we have already said, the price paid for these goods by the assessee, together with the apportioned expenses incurred by him for warehousing them, plus a certain amount for overhead charges at Bhadohi in proportion to the relation that these goods bore to the total turnover at Bhadohi. The profit or gain would be ascertained by deducting the whole of this sum from the price for which the goods were sold and in case any portion of the goods were not sold, by taking the difference in the stock as on the opening day and the last day and including that in the profit and loss account prepared to show the amount of the net profit of the assessee earned in British India under Section 4(1) of the Income-tax Act. In other words our view is that it could not be said that the margin of profit added on at Bhadohi when the goods were sent to British India could be treated as profit earned outside Brit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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