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TMI Blog1948 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... erent under the Excess Profits Tax Act (XV of 1940). Under Section 5 that Act is made applicable to every business of which any part of the profits made during the chargeable accounting period was chargeable to income-tax by virtue of the provisions of Section 4(1)(b)(i ) and (ii) of the Income-tax Act. Therefore this Act would have applied to the profits of a business even if those profits accrued or arose outside British India. But there is a proviso to this section with which we are concerned and that is the third proviso which enacts that the Act shall not apply to any business the whole of the profits of which accrue or arise in a Native State. That is not the case here and that is not the contention of the assessee. Then we come to the second part of the proviso, viz., "Where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business." The assessee's contention is that the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, is that the business of the assessee is one comprehensive integrated business. His business is to manufacture oil for the purpose of selling it and profits only accrue or arise when oil is sold at the place where it is sold and at the time when it is sold, and till the sale is effected no profits would have accrued or arisen in respect of the assessee's business. The Advocate-General has also contended on behalf of the Commissioner that manufacturing oil is not a part of the assessee's business. According to him as the business of the assessee is both manufacturing and selling oil in order that a part of the business should be carried on in any particular place it must be a part of the whole. It must be both manufacturing and selling, and inasmuch as at Raichur the assessee is merely manufacturing and not selling oil, according to the Advocate-General, no part of the business of the assessee functions at Raichur. Apart from the authorities, and I shall presently refer to the cases cited at the bar, I see no reason why a plain grammatical construction should not be placed upon the expression "a part of a business." I should have thought that when a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected by the Privy Council. Reading the judgment of Lord Davey it is clear that the Privy Council took the view that some part at least of the business of the assessee was carried on in New South Wales. At page 692 Lord Davey says as follows :- "At first sight it seems startling that the ultimate result in the form of profit of a business carried on in the colony is not to some extent taxable income there." Then it is pointed out in the judgment that there are four processes in the earning or production of income of the company : (1) extraction of the ore from the soil, (2) conversion of the crude ore into a merchantable product, (3) sale of the merchantable product, and (4) receipt of the moneys arising from the sale. It is emphasised that all these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages. Their Lordships of the Privy Council then pointed out the fallacy of the judgment of the Supreme Court and of Tindal's case [1897] 18 NSWLR 378, which they followed in that case, in leaving out of 'sight the initial stages and fixing their attention exclusively on the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the factories of the selling agents of the company and were sold there by the selling agents and the sale proceeds were received and retained by the assessee in Mangalore. When question arose whether the whole or any part of the income derived by the assessee from the products of his coffee estates from Mysore were exempt from tax under the second proviso to Section 4(2) the Court held that the income was exempt from tax under that proviso, as the income accrued or arose in the Mysore State. The Madras case went before the Privy Council and it is reported in 7 ITR at page 48. The Privy Council took the view that income was received in British India and therefore the proviso to Section 4(2) had no application. They therefore decided that it was not necessary to consider this particular question which the Madras High Court had decided. In their judgment they have put both the sides of the question and left the matter at large. Their Lordships say that the business operations could not be arbitrarily cut into two, but they must be regarded as a whole. That is the argument as put forward by the Advocate-General. The other argument is so stated by their Lordships :- "On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it taxes is the profits or gains of a business whereas the Income-tax Act taxes all sources of income of an assessee. But even so, even under the Excess Profits Tax Act it is the assessee who is taxed in respect of his income in a business. The Advocate-General has relied on a decision, Walchand & Co. v. Hindustan Construction Co. [1944] 12 ITR 104 , where Beaumont, C.J., at page 107, considered the scheme of the Excess Profits Tax Act. He points out that there was a vital distinction between the two taxes. This is how he describes the distinction : "Income-tax is a tax on all income with certain exceptions, whereas excess profits tax is a tax levied only on certain profits of the owner of a business." It is the owner of the business who is taxed in respect of his business. I must frankly confess that the question we have been considering is not free from doubt or difficulty and much can be said on the side supported by the Advocate-General but if such a situation arises then it is clear that the duty of the Court is, in a case of a reasonable doubt, to put such a construction upon a taxing statute as is most beneficial to the subject. It is also clear that all charges u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as a separate business within the meaning of the third proviso. The relevant part of the third proviso to Section 5 is as follows :- "Provided further that........ where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business." Now, in order that this proviso should apply, there are three conditions which ought to be satisfied as laid down in the proviso itself: (1) that there must be a part of a business, (2) that such part must produce profits, and (3) that the profits must accrue or arise in an Indian State. Taking first the first condition, it is a commonplace to say that carrying on of any business involves a number of operations. It is the case of the Advocate-General that the meaning to be assigned to the words "part of a business" in this proviso is not the ordinary dictionary meaning of the word "part", viz., a portion only. He says that all the requisite operations constituting a business, only quantitatively less than the whole business, can alone form a part of the business. In other words, a part of the business must be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made until the oil is sold ; but that merely fixes the time when profits are made. It does not follow therefrom that profits are made merely by the act of sale. The act of sale is the culminating process of the whole business ; and it would be undoubtedly laying an undue emphasis on this final act or process to say that all the profits were attributable to that operation only. Part of the process which enabled the assessees to sell the oil was the manufacture of the oil and to my mind a portion of the profits must necessarily be attributable to the manufacture of the oil when profits are made. It is not necessary that they should be so attributable at the time that the goods are manufactured, because it may well happen that the business makes no profits at all, in which case there would be no profits of manufacture. Taking next the third condition, where did the profits attributable to the manufacture accrue or arise? No doubt, the profits are realised at the place where the oil is sold, that is in British India; and to the extent to which these profits are attributable to the sale it cannot be disputed that they accrue or arise in British India. But to the extent to which such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business involves the carrying on of more than one process, some profit is attributable to each of such processes; and that such profit accrues or arises at the place where the process is completed irrespective of the place where the ultimate profits are realised. The Advocate-General has relied on a decision of the Calcutta High Court reported in In re Mohanpura Tea Co., Ltd. [1937] 5 ITR 118. In this case the assessee company had tea estates in an Indian State; but the tea was brought into British India and sold in British India. The Calcutta High Court, in a reference under the Income-tax Act, held that the income accrued or arose in Calcutta and not in the Indian State. In coming to this conclusion Panckridge, J., who delivered the judgment, states at page 125 :- "In the present case, what was received in or brought into British India was not income, profits and gains, but manufactured tea. Indeed, until the manufactured tea had been sold at a profit in Calcutta, it can hardly be said that there were any income, profits and gains." Apparently, the Tribunal, in the case before us, has taken an identical view, because they in their judgment held: "in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that even assuming that the income in respect of this coffee accrued or arose in Mysore it was taxable under Section 4(1) of the Income-tax Act as it was received in British India in the same year. Their Lordships did not therefore think it necessary to decide whether any part of the income arose within British India. At page 53 of the report Sir George Rankin pointed out the rival contentions of the parties and then proceeded to state:- "Upon the question whether the profits and gains accrued or arose in British India, it may be that the fact that the coffee was grown in Mysore is by no means to be disregarded notwithstanding that it was sold in British India especially if it be true that it was sold without further process of a manufacturing character. For the moment it is enough to say that it may be so, without examining the matter and without prejudice to either view." His Lordship then referred to Kirk's case (supra) but proceeded to state that for the purposes of determining that particular case it was not necessary for their Lordships to decide whether Kirk's case15 was rightly applied by the Madras High Court or was correctly interpreted by the Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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