Receipt of sale proceeds in India taxable for income-tax, while excess profits tax required apportionment to Indian operations.

Sale proceeds of salt collected in India by the Indian agent were treated as income received in India on behalf of the non-resident owner, so the amount was chargeable to income-tax under the charging provisions without needing Section 42. For excess profits tax, the profits were regarded as arising through a business connection in India, but because part of the operations took place outside India, only the profit reasonably attributable to Indian operations could be taxed under the apportionment rule in Section 42(3). The result sustained receipt-based taxation for income-tax while limiting excess profits tax to the Indian element.

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Issues: (i) Whether the sale proceeds of salt received in India by the Indian agent constituted income received on behalf of the non-resident assessee so as to be assessable to income-tax under the charging provisions of the Income-tax Act without recourse to Section 42; (ii) whether, for excess profits tax, the profits from the sale were income deemed to accrue or arise in India through a business connection and, if so, whether only the part reasonably attributable to the operations carried out in India could be taxed under Section 42(3).

Issue (i): Whether the sale proceeds of salt received in India by the Indian agent constituted income received on behalf of the non-resident assessee so as to be assessable to income-tax under the charging provisions of the Income-tax Act without recourse to Section 42.

Analysis: The sale proceeds were collected in India by the Indian company, deposited in its own bank account in India, and remitted after deductions for commission and expenses. On the facts, the Indian company sold the salt on behalf of the non-resident owner and received the proceeds for it. The amount was not a mere gross receipt devoid of income character; gross receipts can include taxable income once proper deductions are made. Since the income was received in India on behalf of the non-resident, it fell within Section 4(1)(a), and assessment could be supported by the statutory agency provisions without invoking Section 42.

Conclusion: Yes. The income was received in India on behalf of the non-resident assessee and was properly chargeable to income-tax; Section 42 and its apportionment rule did not control that levy.

Issue (ii): Whether, for excess profits tax, the profits from the sale were income deemed to accrue or arise in India through a business connection and, if so, whether only the part reasonably attributable to the operations carried out in India could be taxed under Section 42(3).

Analysis: For excess profits tax, the relevant question was not actual receipt but deemed accrual or arising in India. The dealings between the foreign owner and the Indian seller constituted a business connection in India, and the profits from the sale arose through that connection. As all operations were not carried out in India, with manufacturing in Egypt and selling operations in India, the statutory apportionment rule in Section 42(3) applied through Section 21 of the Excess Profits Tax Act, 1940. Accordingly, only the profits reasonably attributable to Indian operations could be brought to excess profits tax.

Conclusion: Yes. The profits were deemed to accrue or arise in India for excess profits tax, and the assessee was entitled to apportionment under Section 42(3).

Final Conclusion: The assessment succeeded on the income-tax reference, but the excess profits tax reference was allowed to the extent that the statutory limitation based on Indian operations applied. The decision thus sustained taxation on the receipt basis for income-tax while requiring apportionment for excess profits tax.

Ratio Decidendi: Where a non-resident's sale proceeds are received in India by its agent on its behalf, they are taxable as income received in India; but where profits are taxable on a deemed accrual basis through a business connection, and all operations are not carried out in India, only the profits reasonably attributable to Indian operations are assessable.

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