HIRA MILLS LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS is a reference under Section 66(1) of the Indian income-tax act, 1922, by the Income-tax appellate Tribunal (Bombay Branch). The assessee is a company called the Hira Mills Ltd., (hereinafter called the assessee), which is registered at Ujjain in Gwalior State. The business of the assessee is to manufacture cloth and its mills are situated at Ujjain. The assessee is accordingly a non-resident company for the purposes of the Indian Income-tax Act, 1922. Two questions said to be questions of law, have been set up by the Income-tax Appellate tribunal in the statement of the case which is has submitted. The first is, we think, readily answered, but the second is one of difficulty.

(2.) THE first question relates to the profits and gains of the assessee derived from the sale of cloth at, or through its establishment at Cawnpore in British India. In the accounting year the assessee sold its cloth manufactured in Gwalior at Cawnpore to the value of Rs. 3,87,305 gross, and the Income-tax Department has for the year 1939-40, the assessment year in question, sought to tax the assessee under Section 4(1)(c) upon the entire profits attributable to these gross sales, without allowing any apportionment of that profit between what is attributable to the manufacturing process in Gwalior up to the point of export from that State and what is attributable to the import into, and sale in, British India.

(3.) THE second question is more difficult. It is :-