TaxTMI 
TaxTMI 
1950 (5) TMI 1
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....e Excess Profits Tax Act for the oil manufactured at Raichur, but sold in Bombay. 2. The assessees contend that in respect of such oil a portion of the profits earned by them is attributable to their business of manufacturing oil at Raichur and that portion of the profits should not be assessed to tax under the Excess Profits Tax Act. The taxing authorities rejected the contention of the assessees. The Income-tax Tribunal agreed with them. On a reference the High Court disagreed with the view of the Tribunal and held that the assessees contention was correct. The Commissioner of Income-tax has come in appeal from that decision. In the Excess Profits Tax Act, Section 2(5) defines, "business" as follows :-- " 'Business' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture...... Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act." 3. Section 5 of the Act runs as follows:-- "5. This Act shall apply to every business of which any part of the profits made during the chargeable accounting pe....
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....ct : Provided that references in the said provisions to the assessee shall be construed as references to a person to whose business this Act applies." 5. The relevant portion of Section 42 of tine Indian Income-tax Act is in these terms :-- "42. (1) All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in British India, or through or from any property in British India, or through or from any asset or source of income in British India, or through or from any money lent at interest and brought into British India in cash or in kind, shall be deemed to be income accruing or arising within British India, and where the person entitled to the income, profits or gains is not resident in British India, shall be chargeable to income-tax either in his name or in the name of his agent... (2) Where a person not resident or not ordinarily resident in British India carries on business with a person resident in British India, and it appears to the Income-tax Officer that owing to the close connection between such persons the course of business is so arranged that the business done by the resident pers....
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....s unsound. The definition of business in the Excess Profits Tax Act clearly envisages manufacture as a business by itself. It is not necessary that a manufacturer must be a trader in the commodity he manufactures. Similarly because he is a manufacturer and a trader it does not follow that the two activities necessarily become one indissoluble business of which the profits cannot be separately ascertained. Because a man is a manufacturer, a trader and even an exporter it is not correct to say that unless all the three activities take place in an Indian State he is not entitled to the benefit of the proviso because a part of his business is not in the Indian State. The argument of the appellant is that there should not only be a separate composite unit of the assessee's business in an Indian State but that each operation making up the assessee's business must take place in an Indian State. I find no justification for putting such construction on proviso 3 to Section 5. No authority is cited to support such interpretation of the proviso. It is not contended in the present case that the activities of the assessee as a manufacturer are so spread out as to be incapable of being a....
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....e of this kind to consider the sale of oil as the deciding factor either to ascertain profits or to determine the place of the accrual of profits. Several cases were cited at the Bar dealing with a trader's business where he bought and sold goods. In my opinion those are not relevant to determine the question before us because in the present case the business is of a different nature. In Commissioner of Taxation v. Kirk, Lord Davey distinguished Sulley v. Attorney-General and Grainger & Son v. Gough on this ground. The place of sale was not considered the test when the business was of manufacture and sale. Similarly cases which deal with the liability of the assessee under the Indian Income-tax Act because the profits were received (and not only accrued or arose) in India are also unhelpful. The Judges of the High Court strongly relied on Commissioner of Taxation v. Kirk for their conclusion in favour of the assessee. It was a case of mining operations where the mines were in one colony and the sale of the ore in another. Under the Taxing Act in that case, it was observed that it was wholly immaterial whether the person to be taxed resided in the colony or not. Nor was it mater....
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....n apportioned part of profit, which although it might be received outside the province of 'S' could fairly be regarded as having been partially earned inside that province. In my opinion that case substantially helps the contention of the respondents and negatives the appellant's contention. It shows that when the manufacturing portion of the activity of the assessee is in one province and the sale is in another province, the whole profits are not necessarily considered as arising from the sale or at the place of sale although they may be treated as received on sale of the products. Secondly, it shows that profits could be apportioned between the manufacturing and trading activities, particularly when the assessee carried on the business of a manufacturer and trader together. This decision was sought to be distinguished by the Attorney-General on the ground that Sections 23 and 24 of the Taxing Act of that colony made it a completely different scheme of taxation. I do not think that is a good point of distinction, because proviso 2 to Section 5 of the Indian Excess Profits Tax Act, read with Section 21, prescribes also a scheme in respect of a non-resident although not ....
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.... also sold at Raichur, but the profits derived from such sales were not included in the assessment, and no question now arises in regard to such profits. For the succeeding period commencing from 21st October, 1941, and ending on 8th November, 1942, a tax of Rs. 2,55,485-1-0 computed on the same basis was also imposed on the assessees. The assessees contended that a part of the profits derived from sales in British India of the oil manufactured at Raichur was attributable to the manufacturing operations at Raichur which are an essential part of their business, and that such profits must be excluded from the assessment, under the third proviso to Section 5 of the Excess Profits Tax Act, as having accrued or arisen in the Hyderabad State. The contention was rejected and the whole of the profits arising out of the sales in British India of the oil produced in Raichur were included in the assessments. 12. After unsuccessful appeals to the Appellate Assistant Commissioner, Bombay, the assessees carried the matter to the Income-tax Appellate Tribunal, Bombay, but with no better result. The assessees thereupon applied to the Tribunal requiring them to draw up a statement of the case an....
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....rgeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of Section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section : Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in British India unless the business is controlled in India : Provided further that where the profits of apart only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise then, except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business : Provided further that this Act shall not apply to any business the whole of t....
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....he argument, "a cross-section" of the entire business operations, and not one or more of such operations, however essential for the production of the resulting profits. It is difficult to see how this construction will assist the taxing authority in the present case, for, as already stated, the assessees were selling at Raichur part of the oil manufactured there, and there was thus at that place a complete cross-section of their business which consists of manufacturing and selling oil. Apart from this consideration, I can find nothing in the context of Section 5 to exclude the ordinary meaning of the words "part of a business" and to compel the somewhat strained and artificial interpretation sought to be put upon them which, it may be observed in passing, seems inconsistent with the view which left untaxed the profits derived from the sales at Raichur. Furthermore, Section 5 is to be read with the provisions of Section 42 of the Indian Income-tax Act which has been made applicable, with certain modifications not material here, to excess profits tax by Section 21 of the Excess Profits Tax Act "as if the said provisions were provisions of this Act and refer to excess profits tax inst....
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.... the scheme of charge and collection in such cases will be rendered incoherent. A harmonious interpretation of the scheme requires that the words "part of a business" in proviso (2) must be taken to signify one or more of the operations of the business, and, if so, the same expression used in proviso (3), with which we are here concerned, must also have the same connotation. It follows that the manufacture of oil in the mill at Raichur is a part of the assessees' business. 18. The question next arises whether the profits derived from such manufacture, other than those arising from sales at Raichur which are not now in question, accrued or arose in Raichur, so as to bring the case within proviso (3). It is clear that the oil manufactured at Raichur cannot itself be regarded as income, profits or gains within the meaning of the Indian Income-tax Act or the Excess Profits Tax Act any more than the green coffee in Mathias' case which the Privy Council held could not be so regarded. The oil is manufactured for purposes of sale in order that profits may be earned, and such profits are realised only when the commodity is sold and not before. But, as the test of non-liability un....
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...."fallacy", while in applying a taxing statute which directs attention to the situation of the source of income as the test of chargeability, to ignore the initial stages in the production of the income and fasten attention on the last stage when it is realised in money, it may be open to question whether it is in consonance with business principles or practice, in the absence of any statutory requirement "to that effect, to cut business operations arbitrarily into two or more portions and to apportion, as between them, the profits resulting from one continuous process ending in a sale. It appears, however, unnecessary, in the present case, to consider the applicability of the decision in Kirk's case to assessments arising under the Indian Act which makes the place at which the profits accrue or arise the test of liability or non-liability, as the case may be, as I am of opinion that Section 42 of the Income-tax Act which, as already stated, has been incorporated in the Excess Profits Tax Act, is applicable here and sanctions such apportionment. 19. It is noteworthy that the first part of sub-section (1) of Section 42 providing that certain classes of income are to be deemed ....
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....ation at Bombay. The result is that the profits received at Bombay from the sale of the oil manufactured at Raichur have to be apportioned under sub-section (3) between the two operations of manufacture and sale, and only such portion of the profits as is reasonably attributable to the sale should be deemed to accrue or arise in British India. It must follow, as a corollary, that the rest of the profits, attributable to the manufacture at Raichur, must be regarded as accruing or arising in the Hyderabad State. Therefore proviso (3) to Section 5 of the Excess Profits Tax Act becomes applicable to the case and exempts the manufacturing part of the assessees' business from the operation of the Act. 20. On behalf of the respondent, Mr. Munshi called attention to certain observations of the Privy Council in Chunilal Mehta's case as supporting his contention that, although all the operations of a business must be completed before profit is received, the accrual of the profit begins with the first operation and continues cumulatively till the goods are finally sold, and that, therefore, the expression "accruing or arising in" a place must be applied distributively to the differ....
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....e assessment of the profits of a non-resident to income-tax, under a provincial Income-tax Act in respect of the profits arising from the sale within the province of goods manufactured outside the province. The tax was leviable, in the case of a non-resident person, on the "net profit or gain arising from the business of such person in" the province. Their Lordships held that, although the profits sought to be assessed were all received in the province where the goods were sold, as the profit brought under charge under the Act was only the net profit arising from the business in the province, the manufacturing profits should be excluded from the assessment. Their Lordships referred to other provisions of the Act which, in the converse case, sought to charge a proportionate part of any profit derived from sale outside the province of goods produced in the province as being "earned" within the province, and inferred from those provisions that the intention of the legislature in the charging section was to bring within the ambit of taxation only an apportioned part of the profit. Such a construction, they thought, would "result in a fair and reasonable scheme of taxation in accordance....
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.... of the respondent's branch at Raichur in Hyderabad State and run in the name of Messrs. Ahmed & Sons. By another order dated 28th March, 1944, the same officer assessed the firm to excess profits tax in a sum of Rs. 2,55,485-1-0 for the chargeable accounting period commencing from 21st October, 1941, and ending on 8th November, 1942, on the business income of Rs. 7,46,561, which included a sum of Rs. 2,34,785, being the profits accruing or arising in British India in respect of the Raichur branch. Both the assessment orders were appealed against to the Appellate Assistant Commissioner but without any success. The Income-tax Appellate Tribunal on appeal drew up a statement of case and referred the following question of law to the High Court :-- "Whether on the facts as stated above income accruing or arising to the assessee on sales made in British, India of goods manufactured in Raichur situated outside British India has been rightly held by the Tribunal as income accruing and arising in British India and was liable to excess profits tax?" 26. The High Court re-framed the question as follows :- "Whether on the facts as stated above profits of a part of the....
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....o excess profits tax just in the same way as it is chargeable to income-tax under the Indian Income-tax Act. The whole of his income arising in Raichur has legitimately been taxed under that Act. 30. Section 5 however has three provisos which limit its scope and take certain incomes outside its ambit. The first, proviso is to the following effect :-- "Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in British India unless the business is controlled in India." 31. This exception has no bearing to the facts of the present case. The second proviso is in these terms : "Provided further that where the profits of a part only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then, except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled in India, thi....
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....t, a continued and severable business activity of which the profits could be apportioned or ascertained separately. Secondly, we are called upon to determine at what place do the profits accrue or arise in respect of the part of such business. Do they arise at the place where in the case of a manufacturer his goods are sold, or can they be said to accrue or arise at the place of manufacture? 35. The word "business" has been defined by the Act in Section 2(5) as follows :-- " 'Business' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture or any profession or vocation..." 36. It means any continued activity of a person which yields profits and which is in the nature of trade, commerce or manufacture. It may even be any adventure in the nature of trade, commerce or manufacture. A proviso was added to this definition in the year 1940 in these terms:-- "Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act." 37. The effect of the proviso is that if a man is carrying on a number of activities, whet....
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....ofits attributable to that Fart of the business out of the total sale proceeds could only be said to accrue at the place of manufacture. 38. The present assessee has three mills in British India, a mill at Raichur. He has also a sales depot at Bombay. In his case but for the proviso to the definition of "business" it could be said that he was carrying on five businesses, three of manufacture of oil in India and one of manufacture of oil in Hyderabad and a fifth business as trader at Bombay. By reason of the proviso to the definition, all these businesses become a single business. But for the purposes of provisos 2 and 3 of Section 5 all these are part of a business and have to be treated as separate businesses. The theory of cross-section of a business contended by the appellant is not very intelligible. It was contended that if a man is a manufacturer as well as a seller of goods and also an importer of goods, then in his case the term "part of a business" means the carrying on of all the three activities together and that unless he carries on all the three activities, it cannot constitute "part of business" under the proviso. This contention to my mind is untenable. The only c....
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....of sale merely fixes the time and place of receipt of profits. Profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale. Act of sale is the culminating process in the earning of profits but it goes without saying that the act of sale could not be performed unless the goods were produced at Raichur and it would be wrong from a business point to say that all the profits resulted from that operation. It was the operation of manufacture at Raichur that enabled the assessee to sell oil and some portion of the profits must necessarily be attributable to the manufacturing process. To the extent that the profits are attributable to the manufacture of oil it is not possible to say that they accrue or arise at any place different from the place where the manufactured article came into existence. 42. It was not denied that the business of manufacture at Raichur may produce profits or it may even earn profits and it was conceded that it may also be said that profits are derived from that process of manufacture but it was strenuously argued that earning of profits is not the same thing as the accrual of profits and no profits could be said to accrue o....
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....re made and the profits in respect of the import and export business are said to arise at the place where the business is conducted. This apportionment of profits between a number of businesses which are carried on by the same person at different places determines also the place of the accrual of profits. To hold that though a businessman has Invested millions in establishing a business of manufacture, whether in the nature of a textile mill or in the nature of steel works, yet no profits are attributable to this business or can accrue or arise to the business of manufacture because the produce of his mills is sold at a different place and that it is only the act of sale by which profits accrue and they arise only at that place is to confuse the idea of receipt of income and realization of profits with the idea of the accrual of profits. The act of sale is the mode of realizing the profits. If the goods are sold to a third person at the mill premises no one could have said that these profits arose merely by reason of the sale. Profits would only be ascribed to the business of manufacture and would arise at the mill premises. Merely because the mill owner has started another busines....
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....able to such duty and the duty was so levied by making the apportionment. The rule laid down in this case, though it has special reference to the scheme of the English statute, can appositely be laid down for the apportionment of profits qua parts of a business of an assessee. A similar view was expressed by a Bench of the Calcutta High Court in Killing Valley Tea Company Ltd. v. Secretary of State for India. There the question arose whether the income from a tea garden, where tea was grown and made ready for the market by mechanical process, was assessable. It was held that the income was to be apportioned and so much of it as was obtained by the manufacturing process was assessable. The principle of Maxse's case and of other English cases was applied to the facts of that particular case. In cases where a person is carrying on composite businesses which for purposes of Section 5 are regarded as one business and for purposes of the proviso as several parts of a business, it may be said that there are two stages in the production of the net profit, (1) the manufacture of the article, and (2) the sale of the article and that part of the net profit should be attributed to each sta....
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....ited, and Sudalaimani Nadar v. Income-tax Commissioner. All these cases fall in one category. These are cases where raw materials were purchased at one place and old at another and it was held that in such cases it was the act of sale from which the profits accrued or arose. In most of these cases the goods as purchased were sold without going through any manufacturing process. It was observed that mere act of purchase produces no profit. This proposition has been doubted in a later case. But it is unnecessary to go into this matter. In the case of a trading business, like purchase and sale, it may be said that the business of a person is one operation and the nature and character of the business is such that the profits arise at the place of sale and that in such a case it is not possible to ascribe any profits to the act of purchase and it is still more difficult to apportion them. These cases are no guide for the decision of cases of manufacturing business or business of a like nature. Observations made in these cases must be limited to the facts of each particular case. A number of cases were cited for the proposition that under the Indian Act it is not the place where a person....
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....xt argued in that case that these foreign transactions were part of the profits of the Bombay business carried on by the assessee and all the profits of the business must be computed as a whole. Their Lordships negatived this contention and observed as follows :-- "But the legislature has chosen a different test and applied it to all kinds of profits--'accruing or arising in British India.' It may even have chosen it as fairer because it could be applied distributively to the profits of a single source. However that may be, the profits of each particular business are to be computed wherever and by whomsoever the business is carried on, but only on condition that they are profits 'accruing, arising or received in British India,' etc. What connection exists, if any, between place of direction and place at which the profits arise is a matter not touched by Section 4, 6 or 10. Not only do they lay no stress upon the place at which the business is carried on, they make no mention of it. In these circumstances it cannot be held that it is itself the test of chargeability by virtue of a rule, not mentioned either, that profits arise or accrue at the place where th....
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....hat the profits necessarily accrue or arise at the place where only one operation, namely of sale is performed. Place of accrual of profits cannot necessarily be determined on the test of receivability. In certain cases the place of origin of the profits may be the determining factor while in others the test of receivability may have application. Profits of a trade or business are what is gained by the business. The term implies a comparison between the state of business at two specific dates separated by an interval of an year and the fundamental meaning is the amount of gain made by the business during the year and can only be ascertained by a comparison of the assets of the business at the two dates, the increase shown at a later date compared to the earlier date represents the profits of the business. In this concept of the term the place of business or the source from which they originate would in the case of certain businesses be the place where they can be said to accrue or arise. In this situation the profits realized at sale have to be apportioned between the different business operations which have produced them and those apportioned to the part of business of manufact....
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.... profits tax in respect of income arising out of the sales made in Bombay of the oil manufactured at Raichur. The contention put forward by the assessees is that although the oil was sold in Bombay, it was manufactured at Raichur and a portion of the profits ultimately made must be allotted to the manufacturing process that was carried on at Raichur. The manufacture of the oil, therefore, must be regarded as a part of the business and as the profits of this part accrued at Raichur, it has to be treated as a separate business for purposes of excess profits tax under the third proviso to Section 5 of the Excess Profits Tax Act. The High Court answered this question in favour of the assessees and the Commissioner of Income-tax, Bombay, has come up on appeal to this Court. 52. With a view to appreciate the contentions that have been raised by the learned counsel on both sides, it will be convenient, first of all, to advert to the provisions of the Excess Profits Tax Act which have a bearing on the point. Section 2, sub-clause (5), of the Act defines "business" as including any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture or any prof....
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....contended by the assessees that though they carry on the business of manufacturing and selling oil, the process of manufacture apart from the sale is itself a business and can be treated as a separate part of the trade that the assessees are carrying on. As the profits of this part arose or accrued at Raichur, both the conditions of the proviso are fulfilled in the present case. The learned Attorney-General appearing for the Commissioner of Income-tax has, on the other hand, argued that the expression "part of a business" occurring in the proviso does not refer to or contemplate one of the many activities or processes that are comprised in a business. It can only mean a cross-section of the entire business, complete in itself and including parts of each of the processes that are comprised in the same. It is next said that even assuming that the manufacturing operation can be treated as a part of the business, the profits of the same could and did accrue only at the place of sale and hence the proviso could not be attracted to the facts of the present case. 56. As regards the first part of Mr. Setalvad's contention, I do not think that it can be accepted as sound. "Business" ....
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....ty is he carried on the profession of a journalist, the profits of which depended mainly upon his personal qualifications within the meaning of the Finance Act. On appeal, Sankey, J., reversed the decision of the General Commissioners and held that the assessee was not in the position of an ordinary journalist but derived his profits by the sale of a commodity, thereby carrying on an ordinary commercial business. The Court of Appeal upset this decision of Sankey, J., and held that the assessee was really carrying on two businesses, one that of a journalist, author and a man of letters and the other that of publishing his periodical. The result was that the profits of the two businesses were directed to be apportioned, though the process was by no means an easy one. The same principle was applied by the Calcutta High Court in a case where the growing of tea as an agricultural produce, which was not liable to income-tax, was carried on along with the business of manufacturing tea : vide Killing Valley Tea Co. v. Secretary of State. It is true that these are cases where several businesses were amalgamated and carried on together, or more of which were not liable to tax or excess profi....
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....r attention exclusively on the final stage in the production of the income. 62. Thus according to the Judicial Committee it was a fallacy to regard the profits as arising solely at the place of sale. It is to be noted that under the provisions of the New South Wales Act referred to above, the liability to tax depended not whether the income arose or accrued in New South Wales but whether it accrued from a source in New South Wales. This distinction is undoubtedly important and the learned Chief Justice of the Bombay High Court was not, it seems, right in laying no stress upon it and in observing in course of his judgment that income accrues or arises only at the place where its source is situated. This aspect of the case will discuss later on in connection with the second point that arises for consideration in this case. It is enough to state at the present stage that on the authority of Kirk's case it would be quite legitimate to hold that a portion of the net profit that the assessees in the present case made out of their total business could and should be allotted to the manufacturing process that was carried on at Raichur. The view is strengthened by two recent pronounce....
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....ing them, and receiving the proceeds of such sales. The essence of its profit-making business is a series of operations as a whole. That part of the proceeds of sales in Saskatchewan which is profits is received in Saskatchewan, but it does not follow, of course, that the whole of such profit 'arises from' that part of the company's business which is carried on there within the contemplation of Section 21(a)." 63. Their Lordships agreed with the appellant that a portion of the money received in Saskatchewan which represents net profit should be sub-divided and part of it should be treated as a 'manufacturing profit' arising from the manufacturing business of the appellant outside Saskatchewan. There was no insuperable difficulty according to their Lordships in making this apportionment. 64. This reasoning applies fully to the facts of the present case, though here again I should point out that the scheme of the Saskatchewan Act was to tax profis arising from a business in a particular place and to that extent the language of the Indian Act is undoubtedly different. Like Kirk's case, it can, however, be taken as an authority for the proposition that in ....
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....emplates income or profits not actually arising or accruing in British India but only deemed to arise or accrue in this country under the circumstances specified in the section, and therefore no such question can arise under proviso (3) to Section 5 of the Excess Profits Tax Act. It appears, however, that in enacting proviso (2) to Section 5 of the Excess Profits Tax Act which relates to business carried on by a non-resident, the legislature had in mind the provision of Section 42 of the Income-tax Act. The expression "part of a business" occurring in proviso (2) to Section 5 can, therefore, be taken legitimately to mean such operations of the business to which separate profits are attributable as laid down in sub-section (3) of Section 42. Although proviso (3) is applicable to a different set of circumstances, the words "part of a business" as used in that proviso must be taken to have been used in the same sense as in the earlier proviso and to this extent, at any rate, it favours the contention of the respondents that no cross-section of the entire business was meant by that expression. 66. Again it is quite true that there is no express direction as to apportionment in the t....
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....y is one of the leading pronouncements in this line of authorities. The question for decision in that case was whether the profits of a firm which had its headquarters in Paris and purchased raw skins through an agent in Madras which were exported to and sold in Paris were taxable in British India under Section 33(1) of the Income-tax Act of 1918 which corresponded, though not identically, to Section 42 of the present Act. The question was answered in the negative. The learned Judges held that Section 33 was not a charging but a machinery section and relied on the decision of the English Court in Greenwood v. Smidth and Company, which laid down that a trade is exercised in the place where the business transactions are closed ; and in the case of a selling business, that place would be where the sales are effected and the profits realised. The propriety of the Madras decision was questioned by the Calcutta High Court in Rogers Pyatt Shellac and Company v. Secretary of State for India, and it was pointed out that the Judges of the Madras Court wholly overlooked a vital distinction between Indian and English Income-Tax law in so far as the former lays down that certain profits, though....
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....ion was whether any part of the profits accrued or arose within an Indian State. The answer given by the Court was in the negative, though the Chief Justice in a separate judgment observed that he was not prepared to lay down as a proposition of law that in all businesses of buying and selling, the entire profits necessarily accrue at the place where the sales take place. Each case would depend upon its own circumstances and there may be cases where the place where the commodities are purchased has an importance of its own. In the facts of the case which they were actually deciding it was said that the act of buying was so negligible a part of the operation of the business as not to make any appreciable difference in the apportionment of the amount that accrued or arose in British India. 69. It will be seen that none of these decisions are really of any assistance to the appellant in the present case. All of them proceeded on the footing that no appreciable profit resulted from the operation of buying when the goods were purchased at one place and exported in a raw state to another place for sale. In the Orissa case referred to above, Narasimham, J., expressly observed in course....
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....e cases, it must be admitted, are not of much assistance to the respondents in this case, though they, do not help the appellant either. They were decided on the express language of Section 42 of the Income-tax Act, 1922, as it then stood or the section corresponding to it in the earlier Act. There remains for me to refer to the other line of authorities upon which the judgment of the High Court seems to be primarily based. In my opinion, they cannot also be regarded, as direct authorities on the point requiring consideration in the present case. In Commissioner of Taxation v. Kirk, the profits derived from extraction of ore from the soil and also from the conversion of the crude ore into merchantable product were held to be taxable, as the source of these profits was situated in New South Wales and that was the basis of taxation under the New South Wales Act. The High Court was not right in holding that as a matter of law, profits must be held to arise at the place where the source of the profit is situated. The Privy Council clearly laid down in the case of Commissioner of Income-tax v. Chunilal that income from business does not necessarily arise or accrue at the place from whic....
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.... to be receivable. The two expressions denote almost the same idea and the difference only lies in the fact that one is more appropriate than the other when applied to particular cases. It is clear, however, as the learned Judge pointed out that these words have been used in contradistinction to the word "received" and both of them represent a stage anterior to the point of time when the income becomes receivable ; they connote a character of income which is more or less inchoate. As I have stated already, in proviso (3) to Section 5 of the Excess Profits Tax Act, the Legislature has deliberately left out the word received "and has spoken only of" accruing "or" arising "This shows that the Legislature had in mind cases where profits could accrue to parts of a business before they were actually received. When a raw material is worked up into a new product by process of manufacture, it obviously increases in value ; in other words, there is an accretion of profit to it and the increased value represents this income or profit which is the result of manufacture. As these profits accrue by reason of manufacture, the accrual, in my opinion, cannot but be located at the place where the ma....