1941 (9) TMI 14 - HC - Income Tax

Firm Taxed in British India for Business Operations; Assessee Liable under Income Tax Act

The judgment concluded that the assessee, a firm named 'Sri Hardeo Salt Company,' was deemed a resident in British India and conducted business there, ... - Issues:- Determination of whether the assessee is a resident in British India and carries on business there.- Assessment of whether the assessee has been rightly taxed under the Indian Income Tax Act.Analysis:The judgment involves two references made by the Commissioner of Income Tax under Section 66(3) of the Indian Income Tax Act. The cases pertain to the assessment years 1936-37 and 1937-38, respectively, but the points involved are identical, allowing for a joint disposal. The main questions directed to the Income Tax Commissioner were whether the assessee is a resident in British India and conducts business there, and whether the assessment under the Income Tax Act is correct. The Commissioner suggested affirmative answers to both queries.The assessee, a firm named 'Sri Hardeo Salt Company,' comprises four brothers residing in Muttra, United Provinces. The firm sells salt obtained from the Sambhar Lake in Rajputana. The Income Tax authorities asserted that the firm operated a branch in Muzaffarpur, where salt sales occurred, leading to taxation in British India. In contrast, the assessee argued that the firm was a resident of Rajputana and had no business activities in Muzaffarpur, claiming the Muzaffarpur setup was merely a canvassing agent without conducting business transactions.The Commissioner affirmed that the assessee is a resident in British India and conducts business there. Despite the firm being headquartered in Rajputana, the presence of a branch in Muzaffarpur was highlighted. Activities at Muzaffarpur, such as storage of salt and payment records, indicated business operations. The Commissioner emphasized that orders were accepted and contracts concluded in Muzaffarpur, even though execution took place in Rajputana. The contention that all transactions were completed outside British India was challenged based on the distinction between offers and contracts, citing precedents where business presence was established despite execution occurring abroad.The judgment distinguished the present case from relevant precedents, emphasizing that the acceptance of offers in Muzaffarpur constituted business operations in British India. Consequently, the assessee was deemed liable for taxation under the Indian Income Tax Act. Both questions posed to the Commissioner were answered affirmatively, with the assessee directed to bear the costs of the proceedings. The judgment, concurred by another judge, concluded with the reference being resolved in the affirmative, affirming the tax assessment under the Income Tax Act.