Law:

Section:

Section 5 of the Income-tax Act, 1961 [Corresponding to section 4 of the Indian Income-tax Act, 1922] - Income - Accrual of - Assessment years 1942-43, 1943-44, 1945-46 to 1947-48 - Assessee-company, incorporated in State of Indore, had a textile mill at Indore - During relevant previous years, assessee effected certain sales to merchants and others in British India - ITO, accordingly, held that profits apportionable on said sales accrued or arose in British India - AAC while upholding action of ITO, reduced quantum of profits which order was affirmed by Tribunal -Whether in view of decision of Supreme Court in Seth Pushalal Mansinghka (P.) Ltd. v. CIT 66 ITR 159 (SC), it was to be held that income accrued within British India and that a proportionate part of income was assessable to income-tax - Held, yes FACTS The assessee-company, incorporated in the State of Indore and having a textile mill, was carrying on the business of manufacture and sale of textiles at Indore. During relevant previous years, the assessee effected certain sales to merchants and others in British India. The ITO classified the total sales of Rs. 92, 45, 151 into four categories. The ITO held that profits apportionable on sales of Rs. 16,57,198 accrued or arose in British India and as such taxed the same on accrual basis. Rs. 3,35,855 having been received in British India were taxed on accrual-cum-receipt basis. The AAC, on appeal, held that, taking into account all the facts of the case, it would be fair to take 33-1/3 per cent of the profits realised on sales amounting to Rs. 16,57,198 as attributable to activities in British India. Out of this amount he deducted sales totalling Rs. 1,77,139 as the contracts in respect of those which were signed at Indore and accepted at Inodre. On the balance of sales of Rs. 14,80,059, the AAC held that, on the analogy of rule 33 of the Indian Income-tax Rules, 33-1/3 per cent profits out of the total profits apportionable to such sales should be attributable to the activities in British India and as such taxed in the hands of the assessee. The Tribunal confirmed the order of the AAC. The High Court, however, answered the reference in favour of the…

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