1949 (11) TMI 10 - HC - Income Tax

Tax Jurisdiction: Profits from Timber Sale Outside British India, Section 42(3) Inapplicable

Commissioner Of Income-Tax Versus Anamallais Timber Trust Ltd.

Commissioner Of Income-Tax Versus Anamallais Timber Trust Ltd. - AIR 1951 Mad 551, 1950 18 ITR 333 Mad Issues Involved:1. Whether the entire profits from the sale of timber accrued or arose to the respondent company and were received by the respondent company outside British India.2. If the answer to the first question is negative, whether Section 42(3) of the Income-tax Act would apply to profits received in British India or profits that actually accrued or arose in British India.Issue-wise Detailed Analysis:1. Accrual and Receipt of Profits Outside British India:The primary issue revolves around whether the profits from the sale of timber by the respondent company accrued or arose outside British India. The respondent company, incorporated in Cochin State, entered into contracts with the Government of India for the supply of timber. The contracts were formed through tenders submitted by the respondent and accepted by the Government in British India. The crucial documents related to these contracts were not fully available, leading to an incomplete basis for the arguments.The Tribunal concluded that the contracts were concluded at Chalakudi, outside British India, where the acceptance note was signed. The timber was inspected and certified at Chalakudi, and the goods were delivered f.o.r. (free on rail) at railway stations in Cochin State. The Tribunal held that the profits arose outside British India as the goods were appropriated and delivered outside British India, and the payment was received at Trichur in Cochin State.The High Court, however, determined that the contracts were concluded in British India when the acceptance note was posted by the Government. Despite this, the performance of the contracts, including inspection, certification, and delivery, occurred entirely at Chalakudi. The right to demand payment accrued at Chalakudi when the goods were appropriated to the contracts. Therefore, the profits were realized in Cochin State, not in British India.2. Application of Section 42(3) of the Income-tax Act:Given the conclusion that the profits accrued outside British India, the second issue regarding the application of Section 42(3) becomes relevant only if the profits were deemed to have accrued or arisen in British India. The High Court referenced a prior decision in Baruga Nagayya v. Commissioner of Income-tax, which established that Section 42(3) applies only to profits deemed to accrue or arise in British India, not to those that actually accrued or arose there.Conclusion:The High Court answered the first question in the affirmative, confirming that the profits accrued outside British India. Consequently, the second question was rendered moot. The respondent company was entitled to costs, fixed at Rs. 250. The judgment emphasized the need for complete documentation in income-tax matters to avoid reliance on incomplete or inaccurate representations.