NDLI: Commissioner of Income-tax, Bombay Vs. Ahmedbhai Umarbhai & Co., Bombay

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Excess Profits Tax Act place of manufacturer place of sale Apportionment of profits
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Indian Income-tax Act, 1922 (11 of 1922) Excess Profits Tax Act, 1940 (15 of 1940)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Dismissed
Headnote	Excess Profit Tax Act (XV of 1940), s. 5, Third Proviso - Indian Income-tax Act (XI of 1922), s. 42 (8)- Article manufactured outside British India-Sale in British India-Whether whole profits occures or arise in British India-Liability to excess profits tax Manufacturing operations, whether "part of business " - Apportionment of profits between place of manufacturer and place of sale Permissibility-Applicability of s. 42 (8).Section 5 of the Excess Profits Tax Act, 1940, provided that "the Act shall apply to every business of which any part of the profits made during the chargeable accounting period was chargeable to income-tax." There was also a proviso to the effect that "the Act shall not apply to any business, the whole of the profits of which accrued or arose in an Indian State and that where the profits of a part of a business accrued or arose in an Indian State, such part shall for the purpose of this provision be deemed to be a separate business, the whole of the profits of which accrued or arose in an Indian State, and the other part of the business shall be deemed to be a separate business." A firm which was resident in British India and carried on the business of manufacturing and selling groundnut oil, owned some oil mills within British India and a mill in Raichur in the Hyderabad State where oil was manufactured. The oil manufactured in Raichur was sold partly within the State of Hyderabad and partly in Bombay:Held by the full court (KANIA C. J., PATANJALI SASTRI, FAZL ALI, MEHR CHAND MAHAJAN, MUKHERJEA and DAS JJ.)- The expression "part of a business" in the proviso to section 5 does not necessarily mean a separate composite unit of all the constituent activities of the business or a complete cross section of the entire business operations but is wide enough to mean one or more of the operations of the business, and that the manufacturing operations which the firm carried on at Raichur were "a part of the business" of the assessees within the meaning of the proviso to section 5 of the Act. Held also per KANIA C .J., FAZL ALI, MEHR CHAND MAHAJAN, MUKHERJEA and DAS JJ. .-that the profits of that part of the business, namely, the manufacture of oil at the mill in Raichur accrued or arose in Haichur within the meaning of the said proviso, even though the manufactured oil was sold in Bombay and the price was received there, and accordingly, that part of the profits derived from sales in Bombay which was attributable to the manufacture of the oil in Raichur was exempt from excess profits tax under the proviso to section 5 of the ActPer PATANJALI SASTRI J.-The first part of sub-section (1) of section 42 of the Income-tax Act was applicable to the assesses, the expressions "business connection in British India" and '"asset or source of income in British India'' being wide enough to cover their selling organisation at Bombay ; and as a result, the profits received in Bombay from the sale of the oil manufactured in Raichur had to be apportioned under sub-section (3) of section 42 between the two operations of manufacture and sale, and only such portion of the profits as was attributable to the sale in Bombay should be deemed to have accrued or arisen in British India. It followed as a corollary that the rest of the profits attributable to the manufacture at Raichur must he regarded as accruing or arising in the Hyderabad State and was therefore exempt under the proviso to s. 5 of the Act. Quaere: Whether it is in consonance with business principles or practice in the absence of any statutory requirement to that effect to cut business operations arbitrarily into two or more portions and to apportion as between them the profits resulting from one continuous process ending in a sale and whether Kirk's case is applicable to assessments under the Indian Acts as laying down any general principle of apportionment. Per MAHAJAN J.-Though profits may not be realised until a manufactured article is sold, profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale and to the extent profits are attributable to the manufacturing operations, profits accrue at the place where the operations are carried on. Per :MUKHERJEA.-Where raw material is worked up into a new product by process of manufacture, it obviously increases in value and this increase in value represents the income or profit which is the result of the manufacture, and as this profit accrues by reason of the manufacture it cannot but be located at the place where the manufacturing process is gone through. It is immaterial that the manufactured goods are sold later on at various places. If tho manufacturer is himself the seller, it might be that he receives the entire profits including that of the manufacture only at the time of sale; but in an inchoate shape a portion of the profits does accrue at the place of manufacture, the exact amount of which is only ascertained after the Sale takes place. For purposes of computation the two parts of the business may be conceived of as being carried on by two different sets of persons.
Judge	Honble Mr. Justice Bijan Kumar Mukherjea Honble Mr. Justice Harilal Jekisundas Kania Honble Mr. Justice Mehr Chand Mahajan Honble Mr. Justice Patanjali Sastri Honble Mr. Justice Sudhi Ranjan Das
Neutral Citation	1950 INSC 6
Petitioner	Commissioner Of Income-Tax, Bombay
Respondent	Ahmedbhai Umarbhai & Co., Bombay
SCR	[1950] 1 S.C.R. 335
Judgement Date	1950-05-04
Case Number	68

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