TMI Blog1945 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, and the Income-tax Department has for the year 1939-40, the assessment year in question, sought to tax the assessee under Section 4(1)(c) upon the entire profits attributable to these gross sales, without allowing any apportionment of that profit between what is attributable to the manufacturing process in Gwalior up to the point of export from that State and what is attributable to the import into, and sale in, British India. The facts, as stated in the case submitted to us, show that the assessee maintains a salesman of its own at Cawnpore, to whom it makes a monthly allowance by way of wage or salary. This we take to mean that the salesman at Cawnpore is nothing more or less than a paid employee of the assessee at Cawnpore. The goods imported from the assessee's mills in Gwalior are then sold by the assessee's salesman in Cawnpore and it is not in dispute that the whole of the sale proceeds are collected by the assessee's salesman at Cawnpore. The contention of the assessee before the Income-tax Appellate Tribunal was that the Cawnpore sales, being the result of an initial process of manufacture and production in Gwalior, could not be said to have produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef Justice of Bombay has pointed out in the latter case at page 527, it does have the effect of rendering a non-resident liable to tax in respect of sources of income to which he would not be liable to tax if he was a resident. In that sense it is, of course, a charging section but that is a long way from saying that Section 42(1) has to be read independently of the general charging sections. In seems to us that the truth is that the general charge of income-tax is imposed by Sections 3 and 4 and that the general charge is given a particular application in respect of a non-resident by Section 42(1). Neither can we accede to the alternative proposition that the charge of a non-resident to income-tax on profits and gains actually received or accruing or arising in British India is, by virtue of the words, subject to the provisions of this Act, in any way modified by Section 42, sub-section (3). We think on construction alone that it is quite clear that the relief afforded by Section 42, sub-section (3), applies only to a case in which the profits and gains are deemed under Section 42 to accrue or arise in British India, and not to a case in which they actually so accrue or arise or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a was entitled to deduct a proper commission from the profits accruing or arising in British India in consideration of its sales services. This, however, would appear to us, with great respect, to be a little difficult to understand as it is not easy logically to see how, if the net profits and gains received in England by Messrs. Steel Brothers Co., Ltd., were taxable in British India as profits and gains accruing and arising in Burma, those net profits could again be diminished by deducting from them a sum for commission payable to the assessee company itself which would in effect represent a further taxable profit. We must, therefore answer this first question by saying that the profits and gains referred to therein were rightly held both to have been received in British India by or on behalf of the assessee within the meaning of Section 4(1) (a) of the Indian Income-tax Act, 1922, as amended, and also to have accrued or arisen to the assessee in British India within the meaning of Section 4(1)(c) of the same Act. We feel it right to add, as was obviously intended by the case and since it has formed the sole subject for argument before us, that such profits and gains derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or its refusal, and it is mentioned in the assessment order that in the great majority of cases this was done over a Gwalior State stamp. The broker's accepted form was then returned to the broker for the purchaser's signature. Apparently the contracts are all for delivery F.O.R. Ujjain. Nothing is stated in the case as to who the actual consignee is; but we understand that the goods are generally consigned to self at the place of destination, while the railway receipts are sent (to take the words of the Appellate Tribunal's judgment) by the applicant, i.e., the assessee, to the purchasers through the said brokers or bankers. The Appellate Tribunal in paragraph 7 of its judgment says that presumbly, also, the goods were paid for at Ujjain. The actual facts, however, appear to be that the purchasing merchant took delivery by paying the invoiced price, plus freight and insurance, to a broker or bankers in British India and receiving in exchange an endorsed railway receipt. The original assessment order only mentions payment through brokers. If the question had been one under Section 4(1)(a) or 4(1)(c) of the Act, is might have been very material to know more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o describe accrued or arose through or from any bnsiness connection in British India. We think that the answer must be in the negative. The relevant words of Section 42(1) of the Act are these :- All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in British India... shall be deemed to be income accruing or arising within British India........... Our attention has been called to many of the authorities which have been decided by the Judicial Committee and by Indian Courts as to the application of the words business connection to various sets of circumstances in which a non-resident has had dealings of one sort or another in British India. But we think that, in solving a question which must necessarily depend on particular facts, it is impossible to obtain more than general guidance from other cases involving very different facts. The truth perhaps is that the expression business connection in Section 42(1) of the Indian Income-tax Act is one which permits of no precise difinition. No definition of it is given by the Act itself and the legislature has apparently deliberately chosen to use words of wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan to a company with similar objects in Bombay, had a business connection in British India. In that case there was a definite operating unit in British India with which the Hong Kong company was connected. The case of Commissioner of Income-tax, Bombay v. Remington Typewriter Company (Bombay) Ltd. [1951] ILR 55 Bom. 243 is probably the strongest illustration of a concrete business connection, since in that case the American parent company had established subsidiary companies in India to operate its patents, which subsidiaries it completely controlled. In the Pondicherry Railway case [1931] ILR 54 Mad. 691, the question of business connection did not arise since the case turned on where the profits or gains were received. These, we think, are all cases where the non-resident company sought to be assessed had a very definite business connection in British India in the sense of an organized entity, either controlled by itself or working for it under its direction. In the case in our own Court of Nand Lal Bhandari Mills Ltd., Cawnpore v. Commissioner of Income-tax, Central and United Provinces [1939] ILR 1933 All. 832 ; 7 ITR 45, there was again a definite branch of the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any connection of the assessee with it. It becomes, therefore, a practical question. The assessee, the Hira Mills Ltd., undoubtedly, by the means we have described, sold its cloth to the value of nearly five lakhs in British India during the accounting year. It had customers in British India. It traded with British India. We think, therefore, that there was a business in British India, in the limited sense that a substantial part of the assessee's output found its way into consumption in British India. The next question is whether there was a connection between the assessee and that business. In one way there was an obvious connection in that the assessee was the maker of the goods which were eventually consumed by British India buyers. But we do not think that it is a connection in such a loose sense as this that is contemplated by Section 42(1) of the Indian Income-tax Act'. On the facts, as proved, what other connection was there ? The assessee had no branch, agency or establishment of its own in British India. We cannot discover any facts upon which it can be held even that the assessee, by an arrangement with British India brokers, had in effect constituted an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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