Taxability of non-resident sales income turns on actual receipt in British India and the existence of a real business connection.

Income actually collected in British India on Cawnpore sales was treated as received there and therefore taxable under the charging provisions without apportionment between manufacture outside and sale within British India. The court also stated that the expression "profits and gains" referred to the ordinary commercial profit on sale. By contrast, sales to British India customers through independent brokers did not create a deemed accrual in British India, because the assessee had no branch, agency, or other establishment there and the brokers were not retained agents. The deeming rule was said to require a real, substantive business connection with a business in British India.

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Issues: (i) Whether the profits from Cawnpore sales were received in British India or accrued or arose there so as to be taxable under the charging provisions without apportionment; (ii) Whether profits from sales to British India customers through brokers were deemed to accrue or arise in British India through a business connection within the meaning of the deeming provision.

Issue (i): Whether the profits from Cawnpore sales were received in British India or accrued or arose there so as to be taxable under the charging provisions without apportionment.

Analysis: The sale proceeds from the Cawnpore transactions were actually collected in British India by the assessee's salesman. The charge under the general charging provisions was held to apply to income received in British India, and the relief for profits deemed to accrue or arise under the special non-resident provision was held inapplicable where the income was in fact received in British India. The Court further held that the expression "profits and gains" meant the ordinary commercial profit on sale, and no apportionment was permissible between manufacture outside British India and sale within British India.

Conclusion: The profits from the Cawnpore sales were rightly treated as received in British India and as accruing or arising in British India, without any apportionment, in favour of Revenue.

Issue (ii): Whether profits from sales to British India customers through brokers were deemed to accrue or arise in British India through a business connection within the meaning of the deeming provision.

Analysis: The brokers were found to be independent and not retained agents, and the assessee had no branch, agency, or establishment in British India. The mere fact that the assessee sold goods to British India customers, even through brokers who forwarded offers for acceptance, was held insufficient to constitute the requisite business connection. The deeming provision was treated as requiring a real connection between the non-resident and a business in British India from or through which income was earned.

Conclusion: The sales through brokers did not arise through a business connection in British India within the deeming provision, in favour of the assessee.

Final Conclusion: The reference was answered partly for Revenue and partly for the assessee, with the first question answered against the assessee and the second answered in its favour.

Ratio Decidendi: Income actually received in British India is taxable under the charging provisions as such, and the deeming rule for income arising through a business connection applies only where there is a real, substantive business connection between the non-resident and a business in British India.

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