Apportionment of business profits: place of contract or receipt alone does not determine accrual where operations span multiple locations.

Profits from sales cannot be treated as arising wholly at the place where contracts are executed or sale proceeds are received when the profit-producing operations are carried on at multiple locations. Under section 42(3) of the Income-tax Act, 1922, income is deemed to accrue at the several places where the business operations are carried on and must be apportioned on a reasonable basis. Because the transactions involved operations in Bangalore, Feroke, Beypore and Ceylon, the entire profit was not attributable to Bangalore and had to be apportioned accordingly.

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Issues: Whether the assessee's profits from sales to Colombo arose in Bangalore so as to attract the Part B States (Taxation Concessions) Order, 1950, and whether the profits were liable to be apportioned on the basis of business operations carried on at different places.

Analysis: The income from the transactions could not be treated as arising wholly in Bangalore merely because the contracts were entered into there and the sale proceeds were received there. The business operations connected with the transactions were spread over more than one place, including Feroke, Beypore and Ceylon. On the scheme of section 42(3) of the Income-tax Act, 1922, where all the operations of a business are not carried out within the taxable territories, profits are to be deemed to accrue at the several places where the operations are carried on and are to be apportioned on a reasonable basis. The making of the contracts was only one integral step in the overall selling operations and did not by itself justify treating the entire profit as accrued in Bangalore.

Conclusion: The assessee was not entitled to treat the entire profit as arising in Bangalore, and the profits had to be apportioned. The questions were answered against the assessee.

Ratio Decidendi: Where profit-producing business operations are carried on at multiple places, the place where the contract is made or the sale proceeds are received does not by itself determine the place of accrual of the entire income; profits must be apportioned according to the operations actually carried on.

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