Non-resident business connection taxation: indirect profits linked to British India were held assessable to income-tax.

Profits derived by a non-resident through a business connection in British India were deemed to arise in British India and were therefore assessable to income-tax under section 42(1) of the Indian Income-tax Act, 1922. The assessee carried on business in Colombo, but rice sold there had been purchased through an office maintained on his behalf in Rangoon and exported for resale. On those facts, the business connection in British India was admitted, and the court held that indirect derivation of profits through that connection brought the income within the Indian tax net.

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Issues: Whether profits made in Ceylon on the sale of rice purchased in Burma by an assessee residing outside British India were assessable under section 42(1) of the Indian Income-tax Act, 1922 by reason of a business connection in British India.

Analysis: The assessee carried on business in Colombo, but part of the rice sold there was purchased through an office maintained on his behalf in Rangoon and exported to Colombo for resale. On these facts, the business connection in British India was admitted. The Court held that where a person residing outside British India derives profits, even indirectly, through such business connection, the profits are deemed to arise within British India and are chargeable to income-tax.

Conclusion: The question was answered in the affirmative, and the profits were held assessable under section 42(1) of the Indian Income-tax Act, 1922.

Final Conclusion: Profits attributable to a business connection in British India were treated as income arising within British India, even though the sales and profit-making activity occurred in Ceylon.

Ratio Decidendi: Where a non-resident derives profits indirectly through a business connection in British India, those profits are deemed to arise in British India and are assessable to tax under section 42(1).

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