Pure findings of fact and apportionment of profits upheld under the Income-tax Act, with no referable question of law arising.

A Tribunal's finding that intermediary sales were sham, with profits truly earned by the assessee, was treated as a pure finding of fact supported by evidence; it did not raise a referable question of law under section 66(1). The Court also accepted that profits from branch sales in Native States were apportionable under section 42(1) and section 42(3) where part of the manufacturing activity occurred in British India, and rejected reliance on section 14(2)(c). The apportionment ratio was likewise treated as factual. The assessments were therefore sustained.

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Issues: (i) Whether the Tribunal's finding that the intermediary sales were sham and that the profits were really earned by the assessee gave rise to a referable question of law under section 66(1) of the Indian Income-tax Act, 1922; (ii) Whether the profits from sales made through branches in the Native States were taxable under section 42(1) and section 42(3) of the Indian Income-tax Act, 1922 rather than under section 14(2)(c) of that Act.

Issue (i): Whether the Tribunal's finding that the intermediary sales were sham and that the profits were really earned by the assessee gave rise to a referable question of law under section 66(1) of the Indian Income-tax Act, 1922.

Analysis: The finding that the intermediaries were mere dummies, that the sales standing in their names were fictitious, and that the profits were in truth earned by the assessee was reached on appreciation of a large body of evidence. The distinction was drawn between a pure question of fact and a mixed question of law and fact. A pure finding of fact is open to interference only where there is no evidence or where it is perverse. The mere circumstance that the ultimate conclusion is drawn from primary facts does not convert it into a question of law. The Tribunal's conclusion was supported by evidence and depended on factual inference alone.

Conclusion: No referable question of law arose on this issue and the finding stood against the assessee.

Issue (ii): Whether the profits from sales made through branches in the Native States were taxable under section 42(1) and section 42(3) of the Indian Income-tax Act, 1922 rather than under section 14(2)(c) of that Act.

Analysis: The Tribunal applied the rule that where part of the manufacturing activity took place in British India, the profits attributable to that activity were apportionable under section 42(1) and section 42(3). The contention that only section 14(2)(c) applied was not accepted. The apportionment ratio itself was treated as a question of fact and not as one open to reference under section 66(1).

Conclusion: The taxation under section 42(1) and section 42(3) was upheld and the assessee failed on this issue.

Final Conclusion: The assessee's attempts to characterize the findings as referable questions of law failed, the Tribunal's factual conclusions were sustained, and the tax assessments were upheld.

Ratio Decidendi: A Tribunal's finding on a pure question of fact remains final if supported by evidence, and an inference from primary facts does not become a question of law unless the legal effect of proved facts has to be determined by applying a legal principle.

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