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TMI Blog1952 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... equired for the manufacture abroad and the agent was chosen by reason of his skill, reputation and experience in the line of trade. The terms of the agency stated in the earlier part of this judgment fully establish that Messrs. Best & Co. Ltd. were carrying on something almost akin to the business of a managing agency in India of the foreign company and the latter certainly had a connection with this agency. We therefore negative this contention of the learned counsel as well. Appeal dismissed. - Civil Appeal No 12 of 1952 - - - Dated:- 22-12-1952 - Judge(s) : MEHR CHAND MAHAJAN., N. H. BHAGWATI., S. R. DAS., VIVIAN BOSE JUDGMENT The judgment of the Court was delivered by MAHAJAN, J.--This is an appeal from the judgment of the High Court of Judicature at Madras dated 18th January, 1950, delivered on a reference by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, whereby the High Court answered the two questions referred in the affirmative. The appellant is a public limited company incorporated in the United Kingdom and owns a spinning and weaving mill located at Pondicherry in French India. The year of account of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and materials for the mills was carried on. Thereupon the Income-tax Officer held that such purchases of cotton in British India constituted a business connection in British India and that the profits attributable to the purchases were liable to tax under Sections 42(1) and 42(3) of the Act. The net income of the company was computed to be Rs. 2,81,176 and ten per cent. of this sum was apportioned under Section 42(3) of the Act as being the profits and gains reasonably attributable to that part of the business operations which were carried out in British India. The appellant appealed against the said order of the Income-tax Officer to the Appellate Assistant Commissioner, who confirmed the order of the Income-tax Officer. A further appeal by the appellant to the Tribunal was unsuccessful. At the instance of the appellant, the Tribunal stated a case and referred the following questions for the decision of the High Court under Section 66(1) of the Act :-- " 1. Whether, in the circumstances of this case, the assessee Company had any business connection in British India within the meaning of Sections 42(1) and 42(3) of the Income-tax Act ? 2. Whether any profits could reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se was in these terms :-- " Is this company which purchased shellac and mica in India for sale in the open market in America liable to be assessed to income-tax and super-tax under either Income-tax Act, VII of 1918, or Act XI of 1922 and the Super-tax Act, VIII of 1917. " And it was answered in the affirmative. The same line of reasoning was adopted by the Rangoon High Court in Commissioner of Income-tax, Burma v. Steel Bros. Co. Among recent cases on this point which were decided under Section 42 of the Income-tax Act, 1922, can be mentioned the case of Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax, Bombay and that of Webb Sons Co. v. Commissioner of Income-tax, East Punjab. In the last case, the assessee company which was incorporated in the United States of America was carrying on in America the business of manufacturing carpets. Its only business in British India was the purchase, through its agent in British India, of wool as raw material for use in the manufacture of carpets. It was held that the purchase was an operation within the meaning of Section 42(3) and the profits from such purchases could be deemed to arise in British India and it was consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1895, Section 15, sub-sections (3) and (4), notwithstanding that the finished products were sold exclusively outside the colony. Lord Davey while delivering the judgment of the Privy Council observed as follows : " It appears to their Lordships that there are four processes in the earning or production of this income--(1) the extraction of the ore from the soil ; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process ; (3) the sale of the merchantable product ; (4) the receipt of the moneys arising from the sale. 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. The first process seems to their Lordships clearly within sub-section 3, and the second or manufacturing process, if not within the meaning of 'trade' in sub-section 1, is certainly included in the words 'any other source whatever' in sub-section 4. So far as relates to these two processes, therefore, their Lordships think that the income was earned and arising and accruing in New South Wales. On a parity of reasoning it can well be said in this case that the profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears to us to be well within the import of the term "operation " as used in Section 42(3) of the Act. It is not in the nature of an isolated transaction of purchase of raw materials. The first contention of the assessee is therefore negatived. The learned counsel argued in a rather half-hearted manner that there was no business connection of the assessee in British India. This contention does not require serious consideration. An isolated transaction between a non-resident and a resident in British India without any course of dealings such as might fairly be described as a business connection does not attract the application of Section 42, but when there is a continuity of business relationship between the person in British India who helps to make the profits and the person outside Brtish India who receives or realizes the profits, such relationship does constitute a business connection. In this case there was a regular agency established in British India for the purchase of the entire raw materials required for the manufacture abroad and the agent was chosen by reason of his skill, reputation and experience in the line of trade. The terms of the agency stated in the earlier p ..... 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