Integrated business profits arose in British India on sale, supporting resident status and no split of manufacturing gains.

Profits realised on sales in British India were treated as income arising in British India under Section 4A(c)(b) of the Income-tax Act because the business was an integrated manufacturing-and-selling concern and the profits emerged only on sale. The manufacturing stage did not create a separate taxable profit, and the Act contained no basis for splitting one business profit into manufacturing and selling components for residential-status purposes. Income deemed to accrue or arise under Section 42 was also distinguished from income actually arising, with apportionment confined to the former class. The result was that the company was resident in British India for the relevant year.

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Issues: Whether the profits earned on sales effected in British India constituted income arising in British India within Section 4A(c)(b) of the Income-tax Act, and whether the manufacturing element of the business could be separated from the sales profit for the purpose of determining the company's residential status.

Analysis: The relevant charging scheme treated income as taxable by reference to the place where it accrued or arose, while Section 42(1) and Section 42(3) dealt with income merely deemed to accrue or arise in British India and provided apportionment only in that class of cases. The business carried on by the assessee was an integrated manufacturing and selling concern, and the profits were realised only when the goods were sold in British India. The Court held that the manufacture of the goods did not itself produce a separate taxable profit for the purpose of Section 4A(c)(b), and there was no warrant in the Act for splitting a single business profit into manufacturing profit and selling profit where the income actually arose in British India.

Conclusion: The profits from sales in British India were income arising in British India within Section 4A(c)(b) of the Income-tax Act, and the company was resident in British India for the relevant year; the question was answered in the affirmative in favour of the Commissioner.

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