Territorial accrual of income depends on where contracts are concluded and performed, not mere canvassing in British India.

Profit from sales to the Government of India was upheld as correctly computed under rule 33 because the assessee did not produce reliable material to show a lower actual margin or displace the departmental proportionate-profit basis. For the larger block of sales, profits were held not to accrue or arise in British India because the contracts were concluded and performed at Indore, delivery and payment occurred there, and mere canvassing of orders or prior contact by brokers in British India did not create territorial accrual. Rule 33 was therefore inapplicable to those sales.

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Issues: (i) Whether the profit of Rs. 7,36,156 on sales to the Government of India was correctly fixed in accordance with rule 33 of the Income-tax Rules. (ii) Whether the profits on sales aggregating Rs. 14,80,059 could be treated as having accrued or arisen in British India so as to be assessed by application of rule 33.

Issue (i): Whether the profit of Rs. 7,36,156 on sales to the Government of India was correctly fixed in accordance with rule 33 of the Income-tax Rules.

Analysis: The assessee failed to show that a lower profit margin had in fact been earned on these sales. No reliable material was established on the record to displace the departmental computation, and the contention that the appellate authority had ignored admissible material was not supported by the record. In the absence of sectional accounts or other clear proof, the proportionate profit basis adopted by the department was not shown to be erroneous.

Conclusion: The profit of Rs. 7,36,156 was correctly fixed under rule 33, and the finding was upheld.

Issue (ii): Whether the profits on sales aggregating Rs. 14,80,059 could be treated as having accrued or arisen in British India so as to be assessed by application of rule 33.

Analysis: The sales in question were concluded and performed at Indore, the goods were delivered there, and the sale proceeds were received there. Mere canvassing of orders in British India, or the fact that brokers or merchants had prior contact there, did not by itself create accrual of income in British India. On the facts found, no part of the profits from the four categories of sales could be attributed to accrual or arising in British India.

Conclusion: No part of the profits on these sales accrued or arose in British India, and rule 33 was not applicable.

Final Conclusion: The reference was answered partly against the assessee on the first question and in its favour on the territorial accrual issue relating to the larger block of sales.

Ratio Decidendi: Where contracts are concluded and fully performed outside British India, mere canvassing of orders or intermediary activity within British India does not by itself make any part of the resulting profit accrue or arise in British India.

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