Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, BANGALORE
Vs.
RESPONDENT:
THE UNION OF TILE EXPORTS, BANGALORE
DATE OF JUDGMENT:
10/09/1968
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1969 AIR 299 1969 SCR (2) 55
ACT:
Indian Income-tax Act 1922 s. 4(1)(a)-Place of accrual
of income-Contracts entered into Bangalore in Part B State
and profits received there-Subsequent operations in British
India and Ceylon-Concession under Part B States (Taxation,
concessions) Order, 1950 whether could be claimed in
respect of business activity at Bangalore-Apportionment of
profits under Indian Income-tax Act, 1922 s. 42(3).
HEADNOTE:
The assessee firm carried on business at Bangalore in the
State of Mysore, which at the relevant time was a Part B
State. It was appointed as the sole selling agent for
certain areas in Ceylon in respect of tiles and ridges
manufactured by the principal at Feroke in British India.
According to the agreement between the parties all prices
quoted by the manufacturer were to be F.O.B. Beypore Port
situated in taxable territory. Chartering and loading of
vessels was done by one of the employees stationed at
Calicut. The bills of lading were obtained by the
assessee’s representative at Beypore and sent to Bangalore
when the hundis together with the invoices and shipping
documents were handed over by the assessee to a bank at
Bangalore. Pursuant to the letter of credit opened’ by the
purchaser in Ceylon, payments were made by the aforesaid
bank to the assessee. In income tax proceedings for the
assessment years 1951-52, 1952-53, and 1953-54 the assessee
claimed that since its registered office was in Bangalore
and as the agency agreement with the purchaser at Colombo
was entered into in Bangalore the entire come should be
treated as income accruing or ’arising in Part B State and
concession regarding rates and allowances as provided in
Part States (Taxation Concessions) Order, 1950 should be
allowed to it. The income tax authorities and the Tribunal
decided against the assessee. The High Court however held
that since the profits were received in Part State at
Bangalore, it could not be said that the entire profit
accrued or arose within the meaning of el. (a) of sub-s. (1)
of s. 4 of the Income-tax Act, 1922 in the taxable
territories other than Part B State. According to the High
Court the profits arose at Bangalore, Feroke, and Ceylon,
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of which only Feroke was in the taxable territories, and
therefore, the assessee was entitled to the concession under
the order in respect of the profits that could be
apportioned under s. 42(3) of the Act to the business
operations conducted in Bangalore and Ceylon. The Revenue
appealed to this Court contending that hardly any activity
took place of such a nature as could be said to give rise to
accrual of profits at Bangalore.
HELD: The conclusion which the High Court arrived at
must be upheld.
The making of contracts pursuant to which all the
subsequent activity in respect of the execution of those.
contracts took place resulting in profits to the assessee
was an integral part of the entire selling operations. The
contracts in the present case having been entered into at
Bangalore it could not be said that no part of the business
activity which produced the profits took place there. [53 H]
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1769 to 1771
of 1967.
Appeals from the judgment and order dated December 17,
1963 of the Mysore High Court in I.T.R.C. Nos. 6 of 1959 and
3 of 1960.
C.K. Daphtary, Attorney-General, V.A. Seyid Muhammad, R.N.
Sachthey and B.D. Sharma, for the appellant (in all the
appeals ).
S.T. Desai, Bhuvanesh Kumari and Ravinder Narain, for
the respondent (in all the appeals).
The Judgment of the Court was delivered by
Grover, J. These appeals are by certificate from the common
judgment of the Mysore High Court on the following questions
of law which were referred by the Income tax Appellate
Tribunal under s. 66(1) of the Income tax Act, 1922,
hereinafter called the Act.
"( 1 ) Whether, on the facts and
circumstances of the case, the income of the
assessee did not arise in Bangalore (Mysore
State) in respect of sales effected by the
assessee to the Burma Teak Trading Co., Ltd.,
Colombo ?
(2) If the answer to. the above question
is in favour of the assessee, then whether,
on the facts and circumstances of the case,
the assessee is entitled to the concession
under Part B States (Taxation Concessions)
Order, 1950 ? and
(3 ) Whether, on the facts and
circumstances of the case, the apportionment
of profits of business is called for pursuant
to assessee’s trading activities in Bangalore
(Mysore State) ?"
The assessee is a firm carrying on business in
Bangalore in Mysore State. It was appointed as the sole
selling agent for Ceylon except Jaffina Peninsula and the
town of Trincomalee for the purpose of marketing, selling
or distributing Lotus Brand tiles and ridges manufactured
by M/s. Modern Tile & Clay Works of Feroke.
According to. an agreement dated August 10, 1949 between
the parties all prices quoted by the manufacturer were to
Be F.O.B. Beypore Fort and for loading into country crafts;
the right to charter or engage vessels was to be with the
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agents. Beypore is in the taxable territory as also Feroke
where the tiles manufacturers carried on their business.
One of the employees
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of the assessee stayed at Calicut during the season to
supervise the operation of delivery of articles and to.
engage vessels. The bills of lading were obtained by the
assessee’s representative at Beypore and sent to Bangalore
where the hundis together with the invoices and shipping
documents were handed over by the assessee to the Indian
Overseas Bank Ltd., Bangalore. Pursuant to the letter of
credit opened by the Burma Teak Trading Co. Ltd., Colombo,
which was the purchaser, payments were made by the aforesaid
bank to the assessee. It is unnecessary to state the
details about the profits which the assessee made during the
relevant assessment years 1951-52, 1952-53 & 1953-54. The
assessee claimed that since its registered office was in
Bangalore and as the agency agreement with the purchaser
at Colombo was entered into in Bangalore the entire income
should be treated as income accruing or arising in Part B
State and concession regarding rates and allowances as
provided in Part B States (Taxation Concessions) Order,
1950, hereinafter called the "Order", should be allowed to
it. The income-tax authorities as also the Appellate
Tribunal decided against the assessee. It was held that
hardly any activity took place at Bangalore in the matter of
earning the profits from the transactions in question.
The High Court was of the view that since the profits
were received in Part B State, namely, Bangalore, it could
not be said that the entire profit accrued or arose within
the meaning of cl. (a) of sub-s. (1) of’s. 4 of the Act in
the taxable territories other than Part B State. After
referring to s. 42(3) of the Act and certain decisions of
this Court it was observed that the business operations
which produced profits were carried out at three different
places i.e., Bangalore, Feroke and Ceylon. Therefore the
portion of these profits must be held to have accrued in all
these places. The only profits which could be deemed to
have accrued in the taxable territories other than Part B
State were those that could be said to have accrued at
Feroke. The profits that could be attributed to the
business operations at Bangalore could not be deemed to
have accrued in the taxable territories other than the Part
B State nor could it be said that the profits that had
accrued at Ceylon could be deemed to have accrued in the
taxable territories other than Part B State. The answers
which were ’returned to the questions were as follows: --
"(1) The profits of the assessee in
respect of sales effected by it to Burma Teak
Trading Co., Colombo did not entirely arise in
Bangalore (then a Part B State), it arose in
Bangalore, Feroke and. Ceylon.
(2) The assessee was entitled to the
concession under the Order in respect of
the profits that could be Sup.
CI/69-5
58
attributed towards business operations
conducted in Bangalore and Ceylon.’
(4) Apportionment of profits of
business was called
for pursuant to the assessee’s trading
profits.
The sole point which has been raised before us by the
learned Attorney General who appears for the appellant is
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that hardly any activity took place of such a nature as
could be said to give rise to accrual of profits in
Bangalore. It is pointed out that admittedly the
manufacturing concern from where the tiles had to be sent to
Colombo was in Feroke in British India and that the goods
were also delivered F.O.R., Beypore which was in British
India. The assessee’s agent resided in British India and
supervised all the operations there.
Our attention has been invited to the findings of the
tribunal which inter alia were that the assessee purchased
the goods at places outside Bangalore and the sales were
also effected in Ceylon; the assessee continued to retain
its title to the goods till they were delivered to the
Ceylonese buyers on theft accepting the documents and bills
of exchange forwarded through the Bank in that country. The
sale operations were carried out in Ceylon and the profits
attributable to those transactions accrued and arose only in
Ceylon which was outside the taxable territories. The
essential question, according to the learned Attorney
General is, whether any part 0 income accrued or arose at
Bangalore. According to the learned counsel for the
respondent it was clear that the profits accrued at
Bangalore where the assessee’s registered office was situate
and where the contracts were entered into by the assessee
for the sale and purchase of the goods and where moneys were
received. At any rate the profit producing operations could
not be said to have been confined only to places in the
taxable territories because without the contracts no further
steps could be taken in carrying out the transactions and
the contracts indisputably were entered into at
Bangalore. It is urged that the assessee’s business
activity came within the scope and ambit of paragraph 4(1)
(iii) of the Order and therefore it was entitled to the
concessions provided in paragraphs 6, 6A and 7 of that
Order. Section 42(3) of the Act lays. down that when profits
accrue or arise from a business all the operations of which
are not carried out within the taxable territories those
profits must be deemed to have accrued or arisen in several
places where the business operations were carried out and
the total profits earned will have to be apportioned on
reasonable basis amongst the several operations and tax
should be levied only on that portion of the profits which
are deemed to have accrued or arisen within the taxable
territories.
If it be held, as indeed it must be held, that the
making of contracts pursuant to which all the subsequent
activity in respect
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of the execution of those contracts took place resulting in
profits to the assessee, is an integral part of the entire
selling operations, there can be no escape from the
conclusion at which the High Court arrived. The appeals
consequently fail and they are dismissed with costs. (one
hearing fee).
Y.P. Appeals dismissed.
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