LexCOMMISSIONER OF INCOME-TAX, BOMBAY versus AHMEDBHAI UMARBHAI & CO., BOMBAY.
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S.C.R. SUPREME COURT REPORTS 335 COMMISSIONER OF INCOME-TAX, BOMBAY v. AHMEDBHAI UMARBHAI & CO., BOMBAY. [SHRI HARILAL KANIA G~ SAIYID F AZL ALI, PATANJALI SASTRI, MEHR CHAND MAHAJAN, MUKHERJEA and DAS JJ.] E.vcess Prnjits Tax Act (XV of 1940), s. 5, Third Pt·oviso- Indian Incom$-tax Act (XI of 1922), s. 42 (8)-Article manufactttred otttside British India-Sale in British India-Whethu whole profits accriie or arise in British India-Liability to excess pt·ofits tax- Manufacturing operations, whether "part of !msiness " - Aprortion- ment of profits between place of mamifact11re and place of sale- Permissibility-Applicability r>f s. 42 (8}. Section 5 of the Excess Profits Tax Act, 1940, provided that "the Act shall apply to awry 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 whoie of the profits of which accrued or arose in an Indian State and that where the profits of a part of a business aoorued 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 manufac· tured in Raichur was sold partly within the State of Hyderabad and partly in Bombay : Helil,. lnJ the Fitll Com·t (KANIA C. J., PATANJALI SASTRI, FAZL ALI, MEHR CHAND MAHA.JAN, MUKHERJEA and DAS JJ.)- The expression "part of a business" in the provieo 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 tho business" of the assessees within the meaning of the proviso. to section 5 of the Act. Held also pe1· K~NIA C .. J., FAZL ALI, :\IEHH CHAND l\LULUAN, l\11.."KHEHJEA and DAS J.J.-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 Lhe 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 Haichur was exempt from excess profits tax nnder the proviso to section 5 of the Act. ~2-A 195fl May 4 1950 Co111111issio1tcr of /Jtco1uc-tax, Bo111fJay v. Aluucdbhai U111arbhai & Co. 336 SUPREME COURT REPORTS [1950) Per P.\TANJALI SAS TRI J.-The first part of sub-section (1) of section 42 of the Income-tax A.ct was applicable to the assessees, 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 xesult, the profits received in Bombay from the sale of the oil manufactured in Haichur had to be apportioned under sub-section (3) of section 42 bet\veen the two operations of manufacture and sale, and only such portion of the profits as was attributable to the sale in Bombay should he deemed to have accrued or arisen in British India. It followed as a corollary that the rest of the profits attributable to the 1nanufacture at Raicbur rnust he regarded as accruing or arising in the Hyderabad State and w~s therefore exempt under the proviso to s. 5 of the Act. Q~tae9·e: \Vhether it is in consonance with business principles or prA.ctice in the absence of any statutory requirement to that effect to cut business operations arbitrarily into two or more por .. tions and to 11pportion as between the1n the pro5Js resulting frorn one continuous process ending in a sale and \vhether 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 no
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