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TMI Blog1961 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was right in holding that a proportionate part of the profits determined on sales grouped under items Nos. 3, 4, 5 and 9 in the assessment order by the application of rule 33 was assessable to income-tax ? The facts necessary to be stated are briefly as follows : The assessee is a limited liability company incorporated in the State of Indore. It has a textile mill at Indore and it carries on the business of manufacture and sale of textiles. In the relevant assessment years, namely, 1942-43, 1943-44, 1945-46, 1946-47 and 1947-48. the previous years for which were the calendar years 1941, 1942, 1944, 1945 and 1946, the Income-tax Officer found that certain sales were effected to merchants and others in British India both direct and through brokers and also to the Governmental organisations. In respect of these sales the dispute which ultimately went before the Tribunal related to the computation of profits on sales, which were sales to the Government of India, Supply Department, and also certain other sales, which were effected: (i) in pursuance of offers or contracts completed by the company's shops at branches in British India and passed on to Indore for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee praying that certain other questions which, also arose on the Tribunal's order, and which the Tribunal had refused to frame and refer to the High Court, should be directed to be referred by the Tribunal to the High Court, this court ordered the Tribunal to draw up a statement and refer to the High Court the three questions, which we have set out above. The Income-tax Reference No. 56 of 1958 has been already disposed of by us and we are now dealing with the three questions directed to be referred under the supplementary statement, which are the subject-matter of the present Reference No. 5 of 1961. In respect of the sales of ₹ 7,36,156 to the Government of India, Supply Department, in the assessment year 1942-43, the profits which were taxed on accrual basis were determined as the amount which bore the same ratio to the total profits of the company as the said sales bore to the total sales of the company. It was contended by the assessee before the Tribunal that the quantum of profits on the said sales as determined by the Income-tax Officer was excessive. Before the Income-tax Officer, however, no material was placed by the assessee showing that the margin of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing for the assessee, has argued that it is true that before the Income-tax Officer proper data had not been furnished by the assessee but before the Appellate Assistant Commissioner the necessary material had been furnished by it and the Appellate Assistant Commissioner, after permitting the assessee to produce the said material before him, had failed to consider the same. It may be in the discretion of the Appellate Assistant Commissioner either to allow the production of the material or not to allow, but once he had allowed the production of the material on record, he was bound to apply his mind to the same and if he failed to do so, the assessee was entitled to make a legitimate grievance about it. According to Mr. Palkhivala such a grievance was made by the assessee in its grounds of appeal before the Tribunal. The Tribunal, however, had also not considered the said material nor has it considered the question as to whether the Appellate Assistant Commissioner had erred in not taking into consideration the said material. Now, if Mr. Palkhivala was right in his submission that the Appellate Assistant Commissioner, after having allowed the production of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in the hands of the company. Question No. 3 was whether the Tribunal was right in holding that a proportionate part of the profits determined on sales under items Nos. 3, 4, 5 and 9 in the assessment order by the application of rule 33 was assessable to income-tax and question No. 2 was whether the Tribunal was right in holding that in respect of the said sales the profit was correctly determined by the application of rule 33 and that one-third of the profits could be said to arise or accrue in British India. Now, the determination of these two questions will depend on whether the income in respect of these sales had accrued or arisen in British India and it was, therefore, taxable on such accrual basis. As we have pointed out earlier, the total sales of ₹ 14,80,059 fell under four categories. The first of these categories was of sales effected in pursuance of the business canvassed by the company's representative in British India and the amount of sales in respect of this category is ₹ 6,46,028. The modus operandi in respect of these sales was, as stated by the Tribunal in its statement, as follows : The assessee had a paid representative at Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods through a non-resident company's employees in British India such profits cannot be said to have accrued or arisen in British India where the contracts were made in Indore and the sale of goods was effected in Indore and not in British India. In our opinion, on the facts as found in the present case, no part of the profits of the said sale could be said to have accrued or arisen in British India. The mere circumstance that the company's representative has canvassed for orders in British India will not have the effect of making the accrual of any part of the income to take place in British India, where the formation of the contract and its complete performance has taken place in Indore and not in British India. Mr. Joshi, the learned counsel for the revenue, has contended that in the present case the contracts were not concluded in Indore but only in British India. No doubt the statement of the Tribunal mentions that the orders were accepted at Indore but what it really means according to Mr. Joshi is that the orders were received by the company expressing the willingness of the buyers to purchase the goods from the company at Indore. It was thereafter that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dore, contracts were concluded at Indore, and goods were delivered at Indore. It is impossible to hold that any part of the profits in respect of these sales could be said to have accrued or arisen in British India. The sales effected under the fourth category, which amounted to ₹ 3,13,306 are hardly distinguishable from those under the third category. The only difference is that, whereas in the third category, the merchants or other customers had gone to Indore to negotiate and place orders, in the case of these sales the merchants or their brokers on their personal visits to Indore have entered into the contracts. In our opinion, therefore, the view taken by the income-tax authorities and the Tribunal in respect of the profits on sales of the categories enumerated above, which in the relevant assessment year amounted to ₹ 14,80,059 is erroneous, and no part of the profits on the said sales could be said to have accrued in British India so as to make rule 33 of the Indian Income-tax Rules applicable to the same. The result, therefore, is that question No. 3 must be answered in the negative. In view of our answer to question No. 3, question No. 2 does not survi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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