TMI Blog1950 (1) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ave given rise to this reference are these: The Anglo-French Textile Co., Ltd., a public limited company incorporated in the United Kingdom, owns a spinning and weaving mill located at Pondicherry in French India. The mill manufactures yarn and cloth at Pondicherry. The year of account for the company is the calendar year. In the year 1939 no sales of yarn or cloth manufactured by the company were effected in British India, though in the previous years, such sales were effected. It is, however, common ground that all the purchases of cotton required for the mills were made in British India by Messers. Best Co., Ltd., a company having its head office in Madras. Under an agreement between the Anglo-French Textile Co., Ltd., and Messrs. Best ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents exercised their judgment and purchased such qualities and quantities of cotton and at such prices as they, in their experience, considered most advantageous in the interests of the company. Prior to 1939-40 the company was assessed to income-tax in British India on the profits earned by the sales of the goods manufactured by the company effected in British India. The income was computed on a turnover basis. In the course of the assessment for the year 1939-40 the company stated that it discontinued its business in British India with effect from 1st April, 1939, and claimed relief under Section 25 (3). The relief claimed was granted. But the Income-tax Officer in the course of his further enquiries found that though the company was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. It is contended that Section 42 (1) has no application to the case of non-residents purchasing goods in British India and selling them abroad. It is further argued that Section 42 (3) has no application to a case where no portion of the profits and gains has accrued or arisen in British India and that the question of apportionment under Section 42 (3) is relevant only in cases where you can predicate that the profits or a portion of the profits has accrued or arisen in British India. The learned counsel relied in support of his contentions on the decisions of this Court in Madras Export Company's case [1923] ILR 46 Mad. 360 and Sudalaimani Nadar's case [1940] 8 ITR 619 ; [1941] 1 MLJ 99, of the Lahore High Court in Jiwandas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits is requisite. There is no definition of the words business connection and its import is only to be gathered from the context as well as the previous decisions on this topic. It may be that where all that is known is that a few transactions of purchases of raw materials have taken place in British India and the manufacture and sale of goods have taken place outside British India, the profits arising from such sale cannot be considered to have arisen out of a business connection in British India. Where, however, as in this case there is a regular agency established in British India for the purchase of the entire raw materials required for the purpose of manufacture abroad and the agent is chosen by reason of his skill, reputation and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itish India. We are unable to accede to the argument of Mr. O.T.G. Nambiar, the learned counsel for the assessee, that the operation contemplated under Section 42, clause (3), of the Act must be an operation which by itself and without reference to other connected activities is capable of producing a profit or must result in the realisation of a profit. According to the contention of the learned counsel an operation in Section 42, clause (3), means a completed operation and not merely an activity which is part of or in the course of a business, such as buying commodities for manufacture or sale. We are unable to accept the contention that the word operation in Section 42 (3) connotes a cross-section of the entire business of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax, Bombay v. Western India Life Insurance Co. Ltd.'s case (supra ) has no relevancy because there the assessee was a resident of British India and. the question related to the assessment of interest on foreign securities held by the assessee but not brought into British India. The learned Judges of the Bombay High Court held that the third proviso to Section 4(1)(c) of the Income-tax Act applied to the case. Incidentally the learned Judges expressed the opinion that Section 42(1) of the Income-tax Act had no application to the case of residents. When the matter went up on appeal to the Judicial Committee in Commissioner of Income-tax, Bombay v. Western India Life Insurance Co. [1949] 17 ITR 125 , their Lordships reversed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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