Law:

Section:

Section 9 of the Income-tax Act, 1961 [Corresponding to section 42 of the Indian Income-tax Act, 1922] - Income - Deemed to accrue or arise in India - Assessment years 1940-41 and 1942-43 - Whether purchase of wool as raw material for use in manufacturing carpets is an operation carried out in course of his business by a person or firm which manufactures carpets - Held, yes - Assessee, foreign company, had been purchasing wool as raw material for use in manufacture of carpets - Company in its return was showing no income on ground that no sale were made in British India - ITO, however, on basis of actual purchase figures calculated profits and arrived at company's income - Whether in absence of any accounts of assessee, ITO had acted well within his powers under rule 33 by ascertaining profits on basis of purchase figures of raw materials - Held, yes Words & Phrases: Word operation' as accruing in section 42(3) of 1922 Act FACTS The assessee, a foreign company was represented through its agents in India and its only business in India had been the purchase of wool as raw material for use in the manufacture of carpets. The method by which the income-tax payable by the company for the period in question had been assessed was as follows: the company through its agent in each year filed returns showing no income as liable to tax on the ground that no sales were made in British India but only purchases, and no profit and loss account or balance sheet of the company was filed before the ITO for any of the years. The ITO on the basis of actual purchase figures calculated the profits by simply taking a percentage of them, and then, after deducting the sums proved to have been incurred as expenditure, multiplied the resulting figure by four in order to arrive at the company's world income. On appeal the Tribunal upheld the view taken by the ITO. On reference: HELD There could not be any doubt that within the ordinary meaning of the word 'operation' the purchase of wool as raw material for use in manufacturing carpets is an operation carried out in the course of its business by a person or firm which manufactures carpets. In fact wool is the most important raw…

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