RAHIM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE questions referred to us for opinion by the Income Tax Appellate Tribunal, Calcutta Branch, Patna, are as follows : -

(2.) THE assessees headquarters is at Cuttack and he has been assessed to Income Tax for the year 1943 -44 in respect of his dealings in (a) nux vomica and (b) hides, horns, bones etc., which were gathered by him from several Orissa States and sold at several places in British India through his commission agents known as arhatias. The cash realised by these arhatias from the sales of the aforesaid products were all remitted to the head office at Cuttack. The finding of the Tribunal is that the aforesaids products were not subjected to any manufacturing process but that they were transported in their raw state from various Orissa States where they were collected to various places in British India for sale. The assessees accounts were maintained on the mercantile system of accounting.

(3.) ON these facts the main question for decision is whether any portion of the profits of the business can be said to "accrue" or "arise" in any Orissa State. Mr. Patnaik, on behalf of the assessee, argued that inasmuch as the mercantile system of accounting was followed by the assessee, a portion of the profits included the value of the stock -in -trade that might have remained unexported in the States at the end of the year in question and that consequently a portion of the profits should be held to have accrued or arisen in the States. He further contended that buying is an important part of operation in the business of trade and that the Income Tax authorities should have estimated that portion of the profits which accrued or arose in the States and applied the provisions of sub -section (3) of Section 42 of the Indian Income Tax Act for calculating the profits that might be deemed to have accrued in British India. He relied on the provisions of sub -section (2 of Section 14 and claimed exemption in respect of that portion of the profits which accrued in the States was not brought into British India.