Income received through an Indian agent and post-profit profit-sharing payments treated as non-deductible in business profit computation.

Income received through an assessee's agent in British India was taxable where the agent, acting under instructions, received, apportioned, and dealt with the railway payments locally on the assessee's behalf. A contractual obligation to pay a half share of net profits to the French Colonial Government was not an allowable business deduction because it arose only after profits were earned and represented a distribution out of profits, not expenditure incurred to earn them. The assessment was therefore sustained on both points.

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Issues: (i) whether the payments made by the South Indian Railway Company to the assessee were income received in British India; and (ii) whether the half share of net profits payable by the assessee to the French Colonial Government was an allowable deduction in computing business profits.

Issue (i): whether the payments made by the South Indian Railway Company to the assessee were income received in British India.

Analysis: The statutory scheme taxed income, profits or gains accruing, arising or received in British India, and business profits were chargeable under the head of business. On the facts, the assessee had an office and agent at Trichinopoly, and the balance due from the South Indian Railway Company was ascertained and paid there. The agent did more than merely transmit money to London: he received the amount on behalf of the assessee, apportioned it according to the concession, and dealt with it in India under instructions from the board.

Conclusion: The income was received in British India through the assessee's agent, and the receipt was taxable in India.

Issue (ii): whether the half share of net profits payable by the assessee to the French Colonial Government was an allowable deduction in computing business profits.

Analysis: The deduction provision permitted only expenditure incurred solely for the purpose of earning profits. The payment to the French Colonial Government arose only after profits had been earned and was a contractual distribution of those profits, not an outgoing incurred to earn them. A payment out of profits, even if obligatory under the concession, does not reduce the taxable profits at source.

Conclusion: No deduction was allowable for the half share payable to the French Colonial Government, and the assessee's contention failed.

Final Conclusion: The assessment was upheld on both substantive issues, and the appeal failed.

Ratio Decidendi: Where an assessee's agent in British India receives and appropriates business receipts on the assessee's behalf, the income is received in British India; and a post-profit contractual payment to another party is not deductible as expenditure incurred to earn the profits.

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