GOURHARI RICE MILL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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

(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.