Gourhari Rice Mill Vs. Commr. of Income-tax - Court Judgment

Narasimham, J.

1. This is a petition under Section 66(2), Indian Income-tax Act requesting the Court to direct the Income-tax Appellate Tribunal, Madras Bench, to state a case under the following circumstances.

2. The petitioner is an unregistered firm carrying on the business of milling rice in its factory situated in Nilgiri State (now merged in the district of Balasore) and exporting the same for sale to various places in the territories which were formerly known as British India. For the assessment year 1943-44 the firm was assessed to income-tax as a non-resident through its admitted agent Jashbant Bhol who was a resident of village Angula, P. S. Soro, in Balasore district. Even before the Income-tax Officer the petitioner objected to the assessment on the ground that the entire profits of the business accrued or arose in Nilgiri State which then did not form part of British India and was consequently exempt from assessment. As a matter of fact, the petitioner was assessed to income-tax by the Income-tax Officer, Nilgiri State, also for the year in question. The Income-tax Officer of Balasore, however, rejected the petitioner's objection observing that the sales took place either at Howrah or at Balasore in British India and that the evidence of the petitioner's partner Brundaban Ransingh was itself sufficient to show that the sale prices were received in the form of hundis from Calcutta which were mostly cashed in some places in Balasore district. He, therefore, held that the profits of the firm 'accrued or arose and were received in British India'. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer observing

'It is now settled law that the profit arises where the sales are made and a sale is not com-plete until delivery is given of the goods concerned; in view of the matter, the entire income of the appellant accrued in British India.'

Before the Income-tax Appellate Tribunal the same point was urged. But the Tribunal held on the facts that the sale proceeds of the rice supplied by the Mill were received in British India, that the goods were delivered to the purchasers in British India and not in Nilgiri State and that consequently no part of the profits accrued or arose in Nilgiri State. The petitioner thereupon requested the Tribunal to state a case. But the Tribunal rejected its prayer.

3. Mr. Mohanti rightly contended that in view of the recent decision of the Supreme Court reported in -- 'Commissioner of Income-Tax, Bombay v. Ahmedbhai Umarbhai and Co. Bombay', AIR, 1950 S C 134 (A), the income-tax authorities were not right in holding that no part of the income accrued or arose in Nilgiri State. Admittedly the rice mill is located in Nilgiri State and the milling operation is entirely performed there. The facts found are that the rice is then despatched to various purchasers through railway stations located in British India and that the delivery of the goods to the purchasers consequently took place in British India. The sale proceeds also were received in British India in the form of Hundis which were also cashed in those territories. But the income-tax authorities were not justified in relying solely on the place of delivery of goods and the place of receipt of sale proceeds as decisive on the question as to where the profits of the business accrued or arose. In the aforesaid Supreme Court decision it was pointed out that where goods were manufactured in Hyderabad State and the sale of the goods was effected in British India and the sale prices were also realised there a portion of the profits of the business accrued or arose in Hyderabad State also. Applying the principles of that decision to the present case, it would appear prima facie that a portion of the profits of the petitioner's business accrued or arose in Nilgiri State. The authorities concerned will doubtless bear in mind the provisions of Section 42, especially Sub-section. (3), in apportioning the total profits of the business between the profits that accrued or arose in Nilgiri State and the profits that accrued or arose in British India.

4. The next question would be whether the petitioner is entitled to claim any relief in respect of that portion of the income which accrued or arose in Nilgiri State. Clause (c) of Sub-section (2) of Section 14, Income-tax Act is material in this connection. It runs as follows :

'Section 14(2): The tax shall not be payable by an assessee --

(a) xx xx xx(b) xx xx xx(c) in respect of any income, profits or gains accruing or arising to him within an Indian State unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under Section 42.'

The income-tax authorities have not examined the materials furnished by the petitioner with a view to ascertain what portion of the profits which accrued in Nilgiri State was received or deemed to be received in British India. Investigation into this aspect was presumably not considered necessary in view of their decision that no part of the income accrued or arose in Nilgiri State. But primafacie, that view has been shown to be incorrect and consequently further investigation with a view to see whether Clause (c) of Sub-section (2) of Section 14, Income-tax Act is applicable cannot be avoided.

It will perhaps be premature to discuss this point at great length in this order. It is, however, sufficient to note that the mere fact that the hundis were delivered to the petitioner's agent in British India and they were cashed in British India may not suffice for holding that the entire profits were received as income in British India. Mere transmission of funds through British India would not suffice and it should be further shown that the monies were received or deemed to have been received as income (see pp. 239 to 241 of Sampathiyengar's Indian Income Tax Act, Edn. 4, and also the decision of the Privy Council reported in -- 'Commr. of Income-tax, Madras v. S. L. Mathias', AIR 1939 PC 1 (B) and 'the decision of the Bombay High Court in -- 'Kirloskar Bros. Ltd. v. Commr. of Income Tax, Bombay', AIR 1952 Bom 306 (C). I am refraining from discussing this point at length because it may have to be fully considered by this Court when the Tribunal states a case as directed in this order.

5. Another minor point taken by Mr. Mohanti on behalf of the petitioner may also be referred to. He objected to the jurisdiction of The Income-tax Officer of Balasore to make an assessment on the petitioner who was a non-resident. This objection was rightly rejected by the Income-tax authorities. The petitioner submitted to the jurisdiction of the Income-tax Officer by filing a return through its agent Jashbant Bhol and consequently the second proviso to Sub-section (3) of Section 64 Income-tax Act is a complete bar to the petitioner raising any objection regarding the jurisdiction of the Income-tax Officer, Balasore, to make the assessment.

6. I would, therefore, direct the Tribunal concerned to state the following case for the decision of this Court

(i) Whether on the facts and circumstances of this case it can be held that the whole or a portion of the profits of the petitioner's business accrued or arose in Nilgiri State for the year in question.

(ii) Whether on the facts and circumstances of this case any portion of the income, profits or gains which accrued or arose to the petitioner in Nilgiri State was received or deemed to be received in or brought into British India by or on behalf of the petitioner or is assessable under Section 42, Indian Income-tax Act.

Jagannadhadas, C.J.

7. I agree.