Manufacturing profits accrue where production is completed, with doubtful taxing provisions construed in favour of the assessee.

Profits attributable to a manufacturing segment may accrue or arise at the place where manufacture is completed, even if the wider business is treated as one business and sale occurs elsewhere. The Raichur manufacturing activity was treated as a distinct operational part of the assessee's business in an Indian State, so profits referable to that activity fell within the third proviso to Section 5 of the Excess Profits Tax Act, 1940. Where the taxing provision was doubtful, it was construed in favour of the assessee. The result was that the profits of the Raichur activity were treated as accruing or arising in the Indian State for excess profits tax purposes.

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Issues: Whether profits attributable to manufacturing operations carried on in Raichur, in an Indian State, could be treated as profits of a part of the assessee's business accruing or arising in that State so as to attract the third proviso to Section 5 of the Excess Profits Tax Act, 1940.

Analysis: The business was treated under the Excess Profits Tax Act as one business, but that did not mean that only a complete manufacturing-and-selling cycle could constitute a part of the business. The manufacturing activity at Raichur was itself a distinct operational segment of the assessee's business. Profits were capable of accruing or arising to that segment when the manufacture was completed, even though ultimate realisation occurred on sale in British India. The reasoning in the Privy Council authorities was applied to hold that the initial stages of production could not be ignored and that profits attributable to manufacture arose where manufacture took place. In case of doubt, the taxing provision had to be construed in favour of the subject.

Conclusion: The manufacturing activity at Raichur was a part of the assessee's business, and profits attributable to that part accrued or arose in an Indian State. The statutory proviso applied in favour of the assessee.

Final Conclusion: The reference was answered by holding that the profits of the Raichur manufacturing activity accrued or arose in the Indian State and had to be treated as a separate business for purposes of excess profits tax.

Ratio Decidendi: Where a business consists of distinct operative stages, profits attributable to an earlier stage of manufacture may accrue or arise at the place of manufacture, and a taxing provision of doubtful import must be construed in favour of the assessee.

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