Accrual of income depends on where profit first arises; sale in British India made the income taxable there.

Income is taxed where it first comes into existence as income, and the distinction between the source of the business and the place where income accrues or arises is material. Tea grown and manufactured in an Indian State did not itself constitute income when brought into British India; the income arose only when the tea was sold in Calcutta at a profit. Section 4(2) was inapplicable because it governs income already arising outside British India and later received there. The whole income was therefore held to have accrued and arisen in British India, and the reference was answered against the assessee.

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Issues: Whether the whole of the assessee's income from tea grown and manufactured in an Indian State and sold in Calcutta had accrued, arisen or been received in British India.

Analysis: The income-tax charge under the Indian Income Tax Act turns on whether income has accrued, arisen, or been received in British India. The deeming rule in Section 4(2) applies where income has already assumed its character as income outside British India and is then received in or brought into British India. Here, what came into British India was manufactured tea, and the income came into existence only when that tea was sold in Calcutta at a profit. The distinction between the place where income accrues or arises and the place where its source is situated was treated as material, and the proviso relied on by the assessee was held inapplicable once the income was found to have arisen in British India itself.

Conclusion: The whole of the income had accrued and arisen in British India, so the reference had to be answered in the affirmative against the assessee.

Ratio Decidendi: Income is accrued or arisen where it first comes into existence as income, and the deeming provision for income received in British India does not apply where the income itself arises in British India.

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