Income accrues where profit-earning operations occur, not where management sits or accounts are entered.

Income from manufacturing operations accrues or arises where the profit-earning operations are carried on, not merely where a company's head office or directors control its affairs. Profits generated outside British India were therefore not treated as accruing or arising in British India solely because management was in Bombay. Entries made in accounts kept in British India did not amount to receipt there, as bookkeeping cannot convert outside profits into income received within the charge. The Court also held that the broader question whether such income could be taxed as accruing in British India was a question of law within reference jurisdiction, though that did not change the substantive tax result.

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Issues: (i) Whether profits from manufacturing carried on outside British India could be treated as accruing or arising in British India merely because the company's head office and directors were in Bombay and controlled its affairs from there; (ii) Whether entries made in the company's accounts kept in British India amounted to receipt of those profits in British India; (iii) Whether the question whether such income could be taxed as accruing in British India fell within the reference jurisdiction.

Issue (i): Whether profits from manufacturing carried on outside British India could be treated as accruing or arising in British India merely because the company's head office and directors were in Bombay and controlled its affairs from there.

Analysis: The governing charging provision applied only to income that accrued or arose or was received in British India, and the deeming provisions were inapplicable. The Court held that the amendment to the return provision did not enlarge the charge to tax. The profits in question were produced by the manufacturing operations carried on at Aurangabad, where the relevant income-earning processes took place. Mere control by directors from Bombay did not shift the place where the profits arose or accrued.

Conclusion: The profits did not accrue or arise in British India. This issue was decided in favour of the assessee and against the revenue.

Issue (ii): Whether entries made in the company's accounts kept in British India amounted to receipt of those profits in British India.

Analysis: The fact that profits were entered in the accounts for proper bookkeeping did not amount to actual receipt within the meaning of the charging provision. Accounting entries could not convert profits earned outside British India into income received there.

Conclusion: The profits were not received in British India by reason only of the account entries. This issue was decided in favour of the assessee and against the revenue.

Issue (iii): Whether the question whether such income could be taxed as accruing in British India fell within the reference jurisdiction.

Analysis: The Court held that although the question whether income accrues or arises in British India is ordinarily factual, the broader question whether income arising outside British India can nevertheless be taxed as accruing in British India because the company is registered in British India is a question of law and lies within the statutory reference jurisdiction.

Conclusion: The reference jurisdiction extended to the question of law. This issue was answered in favour of the revenue on jurisdiction alone, but without altering the substantive tax outcome.

Final Conclusion: The taxable nexus was not established merely by Bombay control or bookkeeping entries, and the disputed profits remained outside the charge to tax in British India.

Ratio Decidendi: Income from manufacturing operations accrues or arises where the profit-earning operations are carried on, and it is not shifted to British India merely because the company's head office or directors are located there or because the profits are entered in accounts maintained there.

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