TaxTMI 
TaxTMI 
1949 (7) TMI 3
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....cture of carpets. The method by which the income-tax payable by the company for the period in question has been assessed is as follows. The company through its agent in each year filed returns showing no income as liable to tax on the ground that no sales were made in British India but only purchases, and no profit and loss account or balance sheet of the company was filed before the Income-tax Officer for any of the years. The only figures available were those of the actual purchases of wool made in this country which amounted to ₹ 22,88,709, ₹ 7,65,202 and ₹ 15,26,298 during the respective accounting periods. The Income-tax Officer on the basis of these figures calculated the profits by simply taking a percentage of them, and then, after deducting the sums proved to have been incurred as expenditure, multiplied the resulting figure by four in order to arrive at the company's world income. The Income-tax Officer's percentage figures were 7½ per cent, 12½ per cent, and 15 per cent, for the respective years, but these percentages were reduced in appeal to 5 per cent., 7½ per cent., and 7½ per cent. The assessee company has, howe....
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.... cannot be carried on without it. Apart from the common sense view the learned counsel for the assessee has not been able to cite, any authority in support of the; proposition that the purchase of raw material is not an operation within the meaning of Section 42(3). The only case cited in which there was any reference to Section 42(3), Rahim v. CIT [1949] 17 ITR 256 went against him on this point. This case referred to a merchant who purchased hides, horns, bones, etc., in the Orissa States and exported them for sale to places in British India, and the question referred to the High Court by the Income-tax Tribunal was whether the income, profits or gains of his business or any part thereof accrued or arose within an Indian State, and if so, whether such income, profits or gains were received or deemed to be received in or brought into British India [within the meaning of Section 14(2)(c) of the Act], or whether Section 42(3) of the Act had any application. The question was not considered in this case, whether the assessee's buying of the materials which he exported and sold was an operation, and in fact it seems that it had been assumed to be such, as can be seen from the follo....
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....k [1900] AC 588. which reads:- "Their Lordships attach no special meaning to the word 'derived', which they treat as synonymous with 'arising' or 'accruing'. It appears to their Lordships that there are four processes in the earning or production of this income : (1) the extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable product, which is a manufacturing process; (3) the sale of the merchantable product ; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which terminate in money, and the income is the money resulting less the Expenses attendant on all the stages...............The fallacy of the judgment of the Supreme Court in this and in Tindal's case 18 NSWLR 378. is in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage in the production of the income." The judgment of Lord Morton in International Harvester Company of Canada Ltd. v. Provincial Tax Commissioner and Others [1949] 17 ITR Suppl. 58. then goes on: "In their Lordships' view, the fallacy of regarding a profit as arising solely at the ....
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....a), the facts were that the assessee bought goods in British India which he used to sell in Kashmir, and it was held by a Full Bench consisting of Shadi Lal, C.J., Broadway, Zafar Ali Tek Chand and Jai Lal, JJ., that a person residing in British India is not liable to be assessed to income-tax under the Indian Income-tax Act, on any part of the profits derived from sale in a foreign country of the goods purchased by him in British India when the profits have neither been received in, nor brought into, British India. In the second of the Madras cases S.V.P. Sudalaimani Nadar's case (supra) the assessee through his agents purchased animals in British India and exported them to foreign country for sale, and it was held that the profits derived from the sale in a foreign country of animals purchased in British India were not assessable to income-tax when the profits had not been received in or brought into British India. The decisions in Madras Export Company's case (supra) and Jiwan Das's case (supra), were relied on. It is, however, to be noted that the two out of these three cases in which the assessee was a resident of British India, the Lahore case and the second of the Madras ca....
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....931] 3 KB 583; [1921] 1 AC 417 . It was held that Section 33(1) of the Indian Income-tax Act [the earlier equivalent of Section 42(1)] did not create a new category of income which would be charged under the Act in addition to incomes mentioned under Section 5 as chargeable under the Act, but that Section 33(1) merely provided a machinery by which non-resident foreigners (amongst others) trading in British India or having business connection in British India could be taxed on income derived by them in British India. But the learned Judges do not appear to have noticed the difference between the Indian Act and the English Act in so far as the former lays down that certain profits though not arising or accruing in British India shall be deemed to arise or accrue in British India." The other leading case cited on behalf of the respondent is Commissioner of Income-tax, Burma v. Messrs. Steel Brothers & Co. [1926] ILR 3 Rang. 614. The company in this case was a large company incorporated in England and with its head office in London, and it carried on various large business undertakings in Burma, specially in connection with rice, timber and cotton. It also had numerous rice mills....
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....9;s operations which were carried out in Burma. The decision in Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax, Bombay [1945] 13 ITR 272 ; AIR 1945 Bom. 285, was also cited. In this case the assessee company carried on business in British India in forms of insurance other than life insurance and the premium receipts were remitted to London and invested in London, none of them being retained for investment in this country and it was held by Stone, C.J., and Kania, J., that the portion of the interest income which was reasonably attributable to that part of the business operations which were carried out in British India was liable to be assessed to income-tax. Some further reference must be made to the decision in Rahim v. CIT [1949] 17 ITR 256 , relied on behalf of the petitioner. In that case the principal question referred to the Orissa High Court was "whether, in the circumstances of the case and on the findings of the Tribunal, the income, profits or gains in question or any part thereof accrued or arose within an Indian State and, if so, whether such income, profits or gains were received or deemed to have been received in or were brought into British India....
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....h it has been held that the profit resulting from operations of this kind in British India by the foreign firms are subject to Indian Income-tax have not been overruled. In the circumstances, I would answer the second of the questions framed by the Appellate Tribunal in the affirmative. As regards the third question, it is clear that the best material for arriving at the profits of the assessee firm would have been its own profit and loss accounts and balance-sheets for the period in question, but these have been withheld, and the only figures available to the Income-tax Officer for arriving at any conclusion were the figures of the actual purchases of wool made by the company's agent in this country. It may be added that the company has not objected to the multiplication of its assessed profits in this country by four for the purpose of calculating its world profits. In assessing the profits of the assessee company the Income-tax Officer has acted under Rule 33 which reads: "In any case in which the Income-tax Officer is of opinion that the actual amount of the income, profits or gains accruing or arising to any person residing out of British India whether directly or ....